Institutional Framework of Tax Incentive

for Micro-Small-Medium Enterprises

SME Development in Emerging Asia : Integration to the Global Value Change

Shanghai, Peoples Republic of China
2 - 3 November 2016

The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the Asian
Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does
not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used
may not necessarily be consistent with ADB official terms.

Presentation Outline
Micro and Small Enterprise Characteristics
Taxation for Small Business.
General Guideline and Requirement for MSME Taxation
Proposed Taxation System
Case Study : Indonesia

Micro and Small Enterprise Characteristics:

Easily change in type of businesses.
Mostly home industry /household business.
High absorption of employment.
Require coaching.
Lack of capability in marketing, capital, and business
management
Informal sector

Taxation for Small Business

is troublesome both for
tax authority
Cost collection ratios (administrative costs/net revenue) of small
taxpayers is higher than big ones.
In some cases, even, cost of administering small taxpayers can outweigh
short term revenue collection
taxpayer
Complex tax rule
High cost compliance

Taxation for Small Business

is needed both for
tax authority
Increase tax base
Increase tax revenue
taxpayer
Be formal sector
Access to credit
Access to government facilities

Should MSME pay tax?

Yes, tax system participation is important for National Development
and Growth Goals:
People contribution to the state
Building taxation culture
Implementing rule of law and legitimacy of the state
Encourage taxpayers to hold government accountable
To increase number of the formal sector
To promote growth, synergies between tax and development policies
Growth ensures higher revenues for government expenditure

General guidelines for small business tax design:

For the firms, system has to be easy to comply with less compliance
costs
For the authorities, the system must not require excessive
administration. i.e. self-assessment, risk based verification by the taxauthority, ...
Tax system has to encourage growth of business
Special regimes need to include safeguards against abuses

Requirements for an MSME Taxation

Components of an MSME Reform :
Segmentation: Defining micro, small and medium
System design: a special, simplified regime for micro and small
taxpayers
Accounting simplification:
Process simplification
Implementation:
Regulations
Training and outreach
Compliance management
Monitoring

Proposed Taxation Scheme

Company Size

Scheme

Notes

Micro

No books, exemption

Low compliance cost but

doesnt recognize
individual business
circumstances

Small

Basic accounting,
presumptive system

Easy to comply, but no

VAT input tax credits

Medium

Maintain accounts
Pay normal VAT and PIT
Simple filing
arrangements

Requires more
accounting but offers
VAT credits for inputs

Large

Full entry into the tax

system

Recognizes full
circumstances of a larger
business
9

Case study : Indonesia

SMMEs Criteria based on Law No. 20/2008:

Type of Business

Net Worth

Turnover/year

Micro

Rp50 million

Rp300 million

Small

> Rp50 million up to Rp500

million

> Rp300 million up to Rp2,5

billion

Medium

> Rp500 million up to Rp10

billion

> Rp2,5 billion up to Rp50

billion

(Source: BPS)

10

MSME Role in Indonesia Economy, 2013

There are 57.9 million units
Contribute around 60 % of GDP
Absorb around 114 million employments or 96,99 % of total work
force
Contribute around 15,6 % of non oil and gas exports.
Contribute only 0,5% the National Tax Revenue

Source : State Minister for Cooperatives Small and Medium Enterprises and Ministry of Finance, Indonesia

Indonesia Corporate Taxation Scheme

Company Size
Annual turnover of less than
Rp 4,8 Billion (micro to lower
medium scale business)*
Annual turnover less than
Rp. 50 billion (upper medium
scale business)

Annual turnover more than

Rp. 50 billion

Income Tax

Taxpayers have to keep records on sales

turnover but they are not obliged to
prepare accounting records.

Tax is 1% of gross sales turnover

obliged to prepare accounting records.

Reduction of Tax Tariff by 50% from the

normal income tax tariff The reduced tax
tarrif is imposed on the first Rp 4.8 Billion
taxable income.

obliged to prepare accounting records and normal

corporate income tax = 25%

Value Added Tax

not implementing the
VAT liability

implementing the VAT

liability

implementing the VAT

liability

Note : 1 USD = Rp. 13000 (October 2016)

* New initiative under government decrees no 46/2013

12

Number of Indonesia Registered Tax Payer

35.0

32.8

30.0
24.8

25.0

20.0
15.9
15.0

10.0

5.0

2009

2010

2011

2012

2013

2014

2015

2016

Indonesia population in 2015 was 255 millions people with 100 millions
potential Income-tax payers but around 70% of them were not in the system,
yet.

Micro-Small and Lower Medium Business Tax Collection

(in Billion Rp)
4000
3500
3000
2500
2000
1500
1000
500
0

2013

Source : DG Tax, MOF Indonesia.

Note : 2016 figure is up to October 2016

2014

2015

2016

Thank You

Wawan Juswanto, PhD

Senior Economist - Capacity Building and
Training Department - Special Adviser to the Dean
Tel: +81 3 3593 5507 (ext. 2104)
Web : http://www.adb.org/adbi/about/staff-profiles/wawan-juswanto