Indonesia May Raise Rp500 Million Tax-Free Turnover Threshold for Small Businesses

Indonesia is considering giving eligible small-business taxpayers a larger tax-free turnover allowance.

Finance Minister Purbaya Yudhi Sadewa said the current Rp500 million annual threshold for eligible individual entrepreneurs may be too low and could be adjusted as economic conditions and policy needs evolve.

The proposal has not yet become law.

No new threshold has been announced.

For now, Indonesia's existing Rp500 million rule remains in force.

What Purbaya Actually Said

Purbaya raised the issue at the 100 Indonesian Economists forum in Jakarta on September 3, 2026.

His argument was that Rp500 million in annual turnover may be too small as a long-term threshold and that implementation can be adjusted when necessary.

That is an important distinction.

The finance minister is opening the door to a policy change.

He has not announced that the threshold has already been increased.

Any headline saying Indonesia “has raised” the limit would therefore be premature.

How the Rp500 Million Rule Works Today

Under Indonesia's current rules, eligible individual taxpayers operating businesses receive an exemption from final income tax on the first Rp500 million of annual gross turnover.

Once turnover exceeds Rp500 million, the 0.5% final income-tax rate applies only to the portion above that threshold.

This is particularly important because a common misconception is that crossing Rp500 million suddenly makes the entire annual turnover taxable at 0.5%.

It does not work that way for an eligible individual taxpayer.

An Rp800 Million Example

Suppose an eligible individual entrepreneur earns Rp800 million in annual turnover.

The first Rp500 million is not subject to the final income tax.

That leaves Rp300 million subject to the 0.5% rate.

The simplified tax calculation would therefore be Rp1.5 million.

The calculation assumes the taxpayer qualifies for the regime and the relevant income is covered by the rules.

It Is Not Article 22 Income Tax

The Rp500 million facility should not be described as an exemption from “Article 22 income tax.”

The relevant framework is Indonesia's final income-tax regime for taxpayers with specified gross turnover.

Government Regulation No. 20 of 2026 amended Government Regulation No. 55 of 2022 on income-tax arrangements.

The 2026 regulation has been in force since April 22, 2026.

Using the correct terminology is particularly important because different Indonesian income-tax articles apply to different types of transactions and taxpayers.

The Rp4.8 Billion Ceiling Still Matters

The tax-free Rp500 million threshold and the Rp4.8 billion turnover ceiling serve different functions.

Rp500 million is the annual tax-free portion available to eligible individual business taxpayers.

Rp4.8 billion is an important ceiling within the final-tax regime.

Taxpayers that no longer meet the regime's criteria may become subject to Indonesia's general income-tax provisions.

That means a discussion about raising the Rp500 million exemption does not automatically imply that the Rp4.8 billion ceiling will also change.

Purbaya has not announced such a change.

Indonesia Recently Made the 0.5% Regime More Durable

Government Regulation No. 20 of 2026 also changed how long some taxpayers may use the 0.5% final-tax facility.

Eligible individual taxpayers and qualifying single-shareholder individual companies can continue using the facility without the previous fixed time limit, provided they continue meeting the relevant conditions.

Cooperatives remain subject to a separate four-year utilization period under the rules.

This was an important change from the previous regime, under which access for certain taxpayers ended after a prescribed number of years.

Why Raise the Threshold?

The policy argument is relatively straightforward.

A higher tax-free turnover threshold would allow some small businesses to grow further before part of their turnover becomes subject to final income tax.

That could leave more cash inside the business for inventory, employees, equipment or working capital.

Turnover is also not the same as profit.

A business can generate Rp600 million or Rp800 million in sales while operating with relatively thin margins after paying for materials, rent, wages and distribution.

That is one reason policymakers periodically review turnover-based tax thresholds.

But There Is a Fiscal Trade-Off

A higher threshold would also affect government revenue.

If more business turnover becomes exempt, the government could collect less final income tax from affected taxpayers in the short term.

The policy question is whether that revenue reduction would be offset by stronger business growth, better compliance or a broader tax base over time.

Those effects cannot be assumed.

They would need to be evaluated once the government decides on an actual threshold.

The New Number Is Still Unknown

Purbaya has not said whether the next threshold could be Rp600 million, Rp750 million, Rp1 billion or another amount.

Until a number is formally proposed and enacted, those figures would be speculation.

Small-business owners therefore should continue using the existing Rp500 million threshold in their tax calculations.

A ministerial statement about future policy direction is not the same as an effective tax regulation.

Not Every MSME Has the Same Tax Treatment

Another important distinction is the word “MSME.”

Business classifications used for economic policy do not automatically determine identical tax treatment.

Tax rules depend on whether the taxpayer is an individual or legal entity, the nature of the income, annual turnover and other eligibility requirements.

The Rp500 million tax-free turnover facility specifically applies to qualifying individual taxpayers.

This is why the simplified phrase “all Indonesian MSMEs pay no tax below Rp500 million” can be misleading.

Administrative Obligations Still Matter

Having no income tax due under the threshold does not necessarily remove every tax-related obligation.

Taxpayers may still need to maintain turnover records and comply with applicable annual filing and administrative requirements.

Accurate records are particularly important because the tax treatment changes once cumulative annual turnover exceeds the relevant threshold.

For a growing business, keeping monthly turnover records can therefore prevent problems when the business crosses from the exempt portion into taxable turnover.

What Comes Next?

Three issues are now worth watching.

The first is the size of any new tax-free turnover threshold.

The second is whether the government changes only the Rp500 million exemption or makes broader adjustments to the small-business tax regime.

The third is the effective date of any new rules.

Until those details are formalized, the current regime remains the relevant legal reference.

Bottom Line

Indonesia's finance minister believes the current Rp500 million annual tax-free turnover threshold for eligible individual small-business taxpayers may be too low.

He has opened the possibility of raising it.

But no new threshold has been approved.

Under the current rules, the first Rp500 million in annual turnover for qualifying individual taxpayers remains free from final income tax.

The 0.5% rate then applies to the portion above that amount, subject to the rules and turnover limits governing the regime.

The key development is therefore a potential policy change—not a tax change that has already taken effect.

Disclaimer: This article provides general tax-policy information and is not individualized tax advice.