Following Jokowi, the new government will continue to encourage the growth of MSMEs – Regulation

Under the Jokowi administration, MSMEs were among the key targets of the national strategic program, a fact that reflects the government’s achievements in implementing fundamental performance improvements in strategic sectors.

With his Onward Indonesia Cabinet, Jokowi initiated pro-MSME policies in his first term in 2015 and gave further prominence when the COVID-19 pandemic hit the country, bringing unprecedented challenges to MSMEs. These policies included the launch of a program to provide working capital support to microentrepreneurs identified as poor and thus vulnerable to the effects of the pandemic.

Ahead of the change of government, the state’s financial performance is once again under scrutiny, leading to growing curiosity about revenue performance.

As the backbone of Indonesia’s economy, MSMEs dominate the national economic structure. They reach 65 million businesses and account for 61 percent of gross domestic product (GDP) and 97 percent of domestic employment.

On the other hand, the data shows that large companies with strong resources control the largest share of the economic pie.

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Dwi Astuti, Director of Tax Dissemination, Services and Public Relations at the Directorate General of Taxes, said: “Several empowerment programs for SMEs have been implemented to improve their competitive advantage and performance. This includes tax incentives.”

The final income tax has been revised downwards from 1 percent to 0.5 percent, while a significant incentive of up to Rp 500 million per year in non-taxable income for private SMEs has been introduced.

Dwi Astuti noted that despite their large numbers, SME entrepreneurs could not compete when it came to their individual contributions, and he needed a serious response from the government to secure the foundation of the future of the national economy.

“One effort is to strengthen a crucial aspect of MSMEs’ resilience, namely their workforce capacity and financial management skills,” she said.

Tax contribution was an obligation for all companies, Dwi Astuti said: “And yet, given the characteristics of SMEs, asking them to meet tax obligations, as we do for large companies, will place a burden on them. ”

“That is why we have taken a friendly approach towards MSMEs through our Business Development Service (BDS) initiative and imposed a final income tax of 1 percent, with simplicity and ease of accounting at the forefront.”

The imposition of tax incentives for SMEs has encouraged more SME players to pay taxes due to the simplified procedure, leading to an increase in tax revenues.

“Unlike in the past when MSMEs thought taxes were a big problem, they now feel that taxes are simpler by imposing a simple rate,” she said.

The efforts of the Directorate General of Taxes to simplify procedures are indispensable for taxpayers and are in line with what Mariona Mas-Montserrat, Céline Colin, Eugénie Ribault and Bert Brys said in an OECD working paper on taxation entitled “The Design of Presumptive Tax Regimes”.

According to the article, simplified administrative procedures make presumptive regimes attractive to taxpayers because they often allowed for simplified accounting rules and procedures, such as cash accounting rather than accrual accounting.

Moreover, presumptive regimes reduce the frequency of tax returns and payments. For example, the options for making annual payments in installments and tax returns are less complex compared to the standard tax system, the newspaper said.

Mas-Montserrat et al. also argue that interacting with a single public counterpart reduces the administrative burden on taxpayers, as public bodies are represented by different institutional structures such as ministries, agencies and departments, all with mandates that may overlap.

“For example, a small company may be required to register in the (national) company register, obtain a (local) business license and register employees (for social security), sometimes with the obligation to provide similar documentation to each institution” , the councilor said. paper notes.

It also shows that digital services simplify administrative procedures for taxpayers.

“Declaring and paying taxes and social security contributions online or via mobile phone can contribute to less time being spent on administrative matters,” the newspaper said.

Dwi Astuti further noted that the Directorate General of Taxes had implemented the BDS program vertically, creating a close relationship between MSMEs and the tax authorities.

The concept of MSMEs moving up a class referred to strengthening the performance of MSMEs by scaling up their capacity in business operations and providing them with more room to maneuver with regard to government regulations and policies.

Limited market access, lack of skilled workforce, lack of digital skills and limited access to financial services are among the challenges faced by SME entrepreneurs, according to experts. The data shows that around 18 million SMEs still lack access to formal financial services, while 46 million SMEs require additional financing for working capital and investments.

While the Directorate General of Taxes provided tax education through training workshops at regional tax authorities, Dwi Astuti said, the Directorate General of Taxes also disseminated information on government facilities and protection to train Indonesian MSMEs, in collaboration with related institutions and organizations.

Under the Jokowi administration, the government has also pushed for the digital transformation of SMEs as part of the National Economic Recovery Program, which set a 2024 target to digitalize 40 million SMEs as one of the key pillars for recovery, in addition to health care and social protection. .

Since 2016, the Directorate General of Taxes has introduced educational opportunities for small and medium-sized enterprises under the BDS initiative to equip small business owners with key skills and knowledge to maintain and grow their key skills and knowledge.

“For example, we give them techniques in (…) digital marketing, how to create attractive product packaging and tips on how to obtain financing from banks,” says Dwi Astuti.

“We teach women MSMEs (entrepreneurs) how to use social media platforms for online sales and as a marketing tool. We also increase their awareness that being involved in (a business) venture is not just a way of daily life, but also a long-term business activity,” she said.

“The aim of the program is to enable MSMEs to move up to a higher class and thus also increase their turnover. (…) Since the launch of the program in 2016, we have reached more than 200,000 MSME actors.”

The Directorate General of Taxes routinely implements the BDS program every year.

Looking ahead, the tax authorities remain committed to strengthening and increasing the number of SME entrepreneurs under the new government, so that they can move up to a higher tax class.

“The Directorate General is committed to supporting the business growth of MSMEs through the BDS program and therefore we look forward to working with the Ministry of MSMEs,” said Dwi Astuti.

Source: Directorate General of Taxes (DGT)