Indonesia Tax Office Uncovers Scheme to Abuse SME Tax Benefits Through Business Splitting

Indonesia's Directorate General of Taxes (DJP) has exposed a tactic used by some businesses to avoid higher tax rates by splitting into multiple legal entities. The scheme involves establishing numerous limited liability companies (PT) or limited partnerships (CV) to keep individual business turnovers below the threshold that triggers a higher tax bracket.

According to Inge Diana Rismawanti, Director of Counseling, Services, and Public Relations at DJP, the tax authority observed a trend where businesses would register a new entity once their turnover approached certain limits. "For example, we see a trend with taxpayers. Once a PT is registered, its turnover increases. Then, in the third year, the turnover starts to decrease. Then a new PT appears. The same goes for CVs," Inge stated at a discussion in Jakarta on June 24, 2026.

DJP data revealed that 14 individuals own more than 50 PT or CV entities, with another 45 individuals holding between 26 and 50 such businesses. While individual taxpayers with turnovers up to Rp500 million are exempt from income tax, those with turnovers between Rp500 million and Rp4.8 billion face a final income tax rate of 0.5%. The identified scheme aimed to keep each entity's turnover below the Rp4.8 billion mark to continue benefiting from the lower rate.

Inge expressed concern that businesses were not progressing to higher tax brackets, stating, "This is what makes us wonder why they are not proud to move up. Shouldn't they be proud to move up? Maybe they can achieve even greater turnover, no longer being micro or small." Consequently, the government, through Government Regulation (PP) No. 20 of 2026, has removed this tax facility for PT and CV entities, though it remains available for qualifying individual taxpayers.