GR 20/2026: Restoring Fairness for MSME

By Sondang R Purba,  Directorate General of Taxes Employee

The Government Regulation Number 20 Year 2026, or what people in Indonesia call GR 20/2026, has been getting a lot of attention lately. Not only because people had been waiting quite a while for clarity after the previous regulation (PP 55/2022), but also because there are assumptions floating around that this new rule doesn’t side with micro, small, and medium enterprises (MSMEs). That impression might come up simply because many haven’t read the regulation thoroughly yet. Instead, they’ve focused on certain sections — like the part stating that Limited Partnerships (CV), Firms (Firma), and Village-Owned Enterprises (BUMDES) are no longer eligible for the incentives.

Final Tax 0,5% is  a Fair Start for the MSMEs

Regulations on MSME taxes are meant to encourage small businesses to grow. The MSME tax scheme gives new business owners some breathing room. For any business with turnover under Rp 4.8 billion, there’s the “privilege” of using a final tax rate of just 0.5%. There’s a  flexibility that they don’t have to prepare full bookkeeping yet. Bookkeeping is important, of course, but for new businesses it can feel overwhelming and take time away from focusing on the core of their business. At this stage, small enterprises can rely on simple recording instead. The tax rate is straightforward — a single tariff of 0.5% applied directly to the total annual turnover. No need to worry about tracking every expense; just make sure all income is recorded, then apply the tariff. It’s that simple. That is why this scheme is attractive: the 0.5% rate is relatively small, and the calculation is easy to apply. When the regulation came along. It felt like the government was saying: “We know you’re just starting. Don’t worry too much about the paperwork. Just pay 0.5% of your turnover and keep moving.”  Yes, Final tax is something taxpayer can handle even as a new business

Closing Loopholes to Protect the Real MSMEs

We know that this regulation  is meant to give incentives to MSMEs. The tricky part about incentives is that it doesn’t just motivate, it also shape behaviour. If it’s not carefully regulated and keep an eye on, people may try to exploit the loopholes. It's no secret that the small tariff and all the easiness is being misuse by some not-small-anymore-company. The truth is, those companies actually have more capitals and resources,  but they are using the loopholes in the 4,8 billion schemes. Those enterprises seem to  fit the legal 4,8 Billion terms and condition on paper, but actually the economic capacity of the company is much bigger. 

Keep in mind, that there is no new tax in this regulation. There are some changes from the previous regulation, yet those changes are to give  the real MSMEs fairer ground to compete.

Some of the changes are :

1. The subjects, now it is mentioned only for individual taxpayer, individual company and cooperative. It excluded the previously eligible Limited Partnership (CV) , Firm (Firma)  and Village-Owned Enterprise (BUMDES).   When someone sets up a CV or firm, they’re already considered independent. Starting a company means they’re expected to understand how business works, keep proper records, and calculate profit. Usually, they already have clear roles inside. The finance and tax side is part of the setup, so they generally have better knowledge in tax.  Bookkeeping is a must for those enterprises.

2. The time span, for individual taxpayer and individual company, now it’s not limited for 7 years only. The MSMEs still can use that  until  they no longer meet the subject criteria,  or choose to use the income tax rate based on the general provisions.

3. While back then 4,8 Billion threshold consist of total gross turnover from business subject to final income tax of 0.5%,   now it is the overall amount of turnover from income derived from business and services related to independent work, whether subject to non-final income tax or final income tax. So yes, it is more clearly that only taxpayer with a total turnover business under 4,8 Billion can use the incentive.

And what’s stay the same?

1. Of course, first  and the most important thing is the good intention of the government, that this  regulation is for the benefit of the MSMEs.  That’s the same spirit from the previous regulation.

2. Same tariff, so the 0,5% tariff still applies as long as taxpayers meet the subject criteria.

3. The time limit for cooperative still 4 years.

4. The 4,8 billion turnover a year as the threshold is still the same, and for individuals with turnover under 500 million still  means no income tax to impose.

So we can see, what  stays  the same and what changes in PP 20/2026 are both for the benefit of the MSMEs.

PP 20/2026 is Good News for MSMEs

Lately, in some social media have been framing that PP 20/2026 doesn’t side with the grassroots. With a bit of insight above, we know that it’s the opposite. The whole point of this regulation is to make sure the incentives go to the people who really need them, and to stop those who try to game the system. It’s about creating a fair playing field, so small businesses can grow and compete with a bigger enterprise. When MSMEs eventually no longer fit the criteria, it’s assumed they’re ready to move up. By then, they should be able to handle proper bookkeeping, show accountability, and pay taxes under the regular system. At that stage, they’re seen as mature companies, expected to pay normal tax rates. But don’t worry, this doesn’t mean taxes suddenly get heavier. Unlike the MSME scheme, the general tariff is based on net profit, not total turnover. And there are still breaks. For companies with annual turnover under Rp 50 billion, the first Rp 4.8 billion is taxed at only half the normal rate. So even when a business grows beyond the MSME threshold, it won’t be crushed by taxes.

In short, PP20/2026 is about fairness. It protects MSMEs, makes sure incentives reach them, and helps those small businesses thrive until they’re strong enough to stand as mature enterprises contributing more to the economy.

*)This article represents the personal opinion of the author and does not reflect the official stance of the institution where the author works.

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