Indonesia cut the final income tax rate for small and medium-sized enterprises by half, to 0.5 percent of their annual sales, in a move to help businesses manage their cash flow and expansion. 

The new regulation was effective on July 1. Before, businesses with annual revenue of less than $340,000 paid a 1 percent tax on their total sales. Small and medium-sized enterprises complaint they had to pay income tax when they were at loss, which disrupted their cash flow. The new regulation is intended to encourage SMEs to be more active in economic activities by providing a fairer taxpaying scheme. To lower their tax bill, SMEs must file an application to the tax office. Individual taxpayers can enjoy the lower tax rate for seven years, corporate taxpayers for four years and limited liability companies for three years. The cut would cost the government around Rp 2.5 trillion a year, which should be seen as an investment, as the policy is expected to increase the tax base. Tax office data show that tax revenue from SMEs last year amounted to Rp 106.3 trillion — only 60 percent of the government's target. It was also nearly Rp 12 trillion lower than in the previous year.