Summary
Indonesia has formally closed the firm splitting loophole in the 0.5% Final Income Tax (PPh) scheme for micro, small, and medium enterprises (MSMEs) through Government Regulation 20 of 2026 (GR 20/2026, or PP 20/2026). Article 57 paragraph (2) letter e of GR 20/2026 requires the IDR 4.8 billion threshold to be calculated on the aggregate revenue of an individual taxpayer together with all Sole Proprietor PTs (PT Perorangan) they own, as well as combined spouse revenue. This deals a direct blow to the long-standing practice of splitting one business into multiple entities to preserve the 0.5% final rate.
Core Change: Revenue Aggregation
For years, some MSMEs split a single operating business into multiple entities. The objective was singular: keep each entity below the IDR 4.8 billion annual threshold so that every entity could continue using the 0.5% final PPh rate under the predecessor regulation, GR 55/2022. GR 20/2026 shuts the loophole through aggregation rules.
Under Article 57 paragraph (2) letter e of GR 20/2026, when an individual taxpayer also owns one or more Sole Proprietor PTs, the gross revenue of all entities is added together. If the total exceeds IDR 4.8 billion in one fiscal year, both the individual taxpayer and their Sole Proprietor PTs lose the 0.5% final rate and must shift to the general PPh regime.
Similar treatment applies to married couples. The revenue of spouses' businesses is combined, including operations established separately by each spouse. This effectively ends the practice of family-owned business splitting that previously doubled the available final-rate quota.
Eligible Subjects Revised
GR 20/2026 also revises the list of subjects entitled to the 0.5% final MSME PPh. CVs (limited partnerships), Firmas (general partnerships), conventional Limited Liability Companies (PT), and Village-Owned Enterprises (BUMDes) are removed from eligibility. Only individual taxpayers, Sole Proprietor PTs, and cooperatives may continue using the 0.5% final rate (source: DDTCNews, 31 May 2026).
The change aligns the MSME Final PPh regime with the spirit of Law 7/2021 (UU HPP): tax facilities limited to genuinely micro and small subjects that are not structured as full corporate entities. Conventional PTs revert to the standard 22% corporate income tax under Article 17 paragraph (1) letter b of the Income Tax Law.
Full Legal Basis
The anti firm splitting and aggregation provisions are codified in:
- Article 57 paragraph (2) letter e of GR 20/2026 (anti firm splitting plus aggregation of individual taxpayer and Sole Proprietor PT revenue)
- Article 57 paragraph (2) of GR 20/2026 (spousal revenue aggregation)
- Law 7/2021 on Harmonization of Tax Regulations (UU HPP), as the umbrella statute
- Article 4 paragraph (2) of the Income Tax Law, as the basis for final PPh imposition
Implications for Taxpayers
First, individual taxpayers who own Sole Proprietor PTs must sum the revenue of both entities when assessing eligibility for the 0.5% final facility. Annual tax filing for fiscal year 2026 becomes a critical evaluation point.
Second, married couples who previously ran separate businesses each below IDR 4.8 billion must reassess their PPh status. If aggregated revenue crosses the threshold, both businesses automatically move to the general rate regime.
Third, business entities organized as CVs, Firmas, conventional PTs, and BUMDes that previously used the 0.5% final rate must recompute their PPh obligations. The final rate is no longer available; PPh is calculated on net income at the standard rate.
Enforcement and Oversight
Through the data integration scheme of PMK 8/2026, which requires the Financial Services Authority (OJK) to submit SLIK data to the Directorate General of Taxes (DGT), the tax authority now has broader visibility into ownership patterns and financial transactions. This strengthens the DGT's ability to detect commercially unjustified firm splitting.
Under PMK 111/2025 on taxpayer compliance supervision, the DGT may issue SP2DK letters to taxpayers showing indicators of business splitting. Taxpayers must explain the ownership structure and operational substance of each entity.
What MSMEs Should Prepare
Affected MSMEs should take three steps. First, conduct a stock-taking of all business entities owned, including Sole Proprietor PTs and spouse-owned businesses. Second, recompute aggregate revenue for fiscal years 2025 and 2026. Third, prepare genuine business documentation (contracts, invoices, transaction flows) to demonstrate operational substance where the separation is supported by legitimate commercial reasons.
For those moving to the general regime, transition to full bookkeeping becomes mandatory. The Net Income Calculation Norm (NPPN) remains available for individual taxpayers meeting the Article 14 Income Tax Law requirements.