The Indonesian government recently announced the Economic Package of 2025, a set of programs intended to stimulate economic growth and increase job opportunities. The package consists of eight accelerated programs in 2025, four programs to be continued in 2026 and five programs specifically for job opportunities. Among the programs, there are also tax incentives introduced by the government, as follows:
Government-borne Article 21 withholding tax (PPh 21 Ditanggung Pemerintah)
Extension of 0.5% Final Income Tax rate for micro, small, medium enterprises (“MSME”) individual taxpayers
Article 21 Withholding Tax Facilities
This facility is actually an expansion of the facilities introduced in Minister of Finance Regulation No. 10 of 2025 on Article 21 Income Tax on Certain Income Borne by the Government in the Framework of Economic Stimulus for the 2025 Fiscal Year (“MOF Regulation 10/2025”).
MOF Regulation 10/2025 provides Article 21 withholding tax incentive for employees with a monthly income of at most IDR 10 million. The facility is applicable for employees of enterprises operating in the footwear, textile and apparel, furniture and leather goods industries. The IDR 10 million limit is applicable whether the payment is in the form of salary, fixed allowances, or other similar fixed and regular compensation.
Based on the recent statement, the Indonesian government intends to expand the scope of the industries. In addition to the labor-intensive industries regulated under MOF Regulation 10/2025, the government also plans for the facility to cover employees in the tourism, hotel, restaurant and cafe industries.
In addition to scope expansion, the government also plans to extend the duration of the facility. MOF Regulation 10/2025 regulates that the facility is applicable until December 2025. The Indonesian government has stated that the facility will be extended to 2026, both for the industries set out in MOF Regulation 10/2025 and the expanded industries.
Extension of 0.5% Final Income Tax Rate for Individual MSMEs
Under Government Regulation No. 55 of 2022 on the Adjustment of Regulations in the Field of Income Tax (“GR 55/2022”), MSMEs with annual gross income of less than IDR 4.8 billion are subject to a final income tax of 0.5% of gross revenue. However, the application of the 0.5% final income tax rate is limited by a time period as follows:
a) Seven fiscal years for individual taxpayers, commencing from the date of registration
b) Four fiscal years for corporate taxpayers in the form of cooperatives, limited partnerships (CV), firms, regionally-owned enterprises (“BUMD”), joint BUMDs, or sole proprietorship companies established by one individual, commencing from the date of registration
c) Three fiscal years for corporate taxpayers in the form of limited liability companies (PT), commencing from the date of registration
With the new policy, the Ministry of Finance plans to extend the entitlement period for the 0.5% final income tax rate until 2029 for individual MSME taxpayers. Based on the government’s statement, it seems like even if an individual MSME taxpayer has passed the seven-year period prior to 2029, the taxpayer can still apply the 0.5%
Key Takeaways
The proposed policies on government-borne income tax incentives for employees in specific sectors and the extension of the 0.5% final income tax rate for individual MSMEs are intended to stimulate economic activity, both for employees and for individual entrepreneurs. We note that these new rules represent extensions or expansions of existing regulations rather than substantive changes.
At this stage, it is unclear on the mechanism to apply for these extended facilities. The government has not clearly mentioned whether the facilities will be automatically extended or a registration process will be needed. Therefore, it is important to take a closer look at the implementing regulation once it is issued. In the meantime, affected taxpayers need to be prepared if they intend to apply for the facilities.