Early Evaluation of the Effectiveness of Final Income Tax Expenditure for MSMEs as a Public Policy Instrument: Implementation of Government Regulation No. 20 of 2026 in Indonesia (Educoretax)

Summary

• In 2024 the final income tax expenditure reached IDR 27.551 trillion for 543,908 beneficiaries, an arithmetic mean of IDR 50.65 million per taxpayer.p.1
• The item equals 6.89% of total tax expenditure (IDR 400.1 trillion) and 19.58% of income-tax expenditure.p.7
• The item rose by 23.16% in 2022, from IDR 22.043 trillion to IDR 27.149 trillion.p.7
• The pre-reform report projected IDR 32.762 trillion for 2026.p.2
• For a taxpayer with IDR 1.5 billion turnover, tax expenditure is IDR 25.90 million at a 20% margin, IDR 3.40 million at 10%, and negative IDR 3.95 million at 5%.p.1
• The break-even accounting margin is approximately 8.49%.p.8
• IDR 4.8 billion is both the final income-tax ceiling and the VAT threshold, creating a double notch.p.1

Key insights

1. The policy moved from a 1% turnover tax under GR No. 46 of 2013 to a 0.5% regime under GR No. 23 of 2018.p.6
2. Law No. 7 of 2021 created an IDR 500 million exemption for individual business turnover.p.6
3. Business Identification Numbers rose from 10 million in August 2024 to about 15.4 million by February 2026, a trend linked to licensing reform rather than the tax regime.p.10
4. Illustrative deemed net income ratios of 10%, 20% and 30% imply expenditure of IDR 3.40 million, IDR 25.90 million and IDR 63.00 million.p.9
5. Benefits rise with profitability, resembling an upside-down subsidy, while low-margin firms may face negative tax expenditure.p.13
6. Relevance and simplicity are only partially supported, and effectiveness and impact cannot be established without post-2026 beneficiary-linked data.p.13