Tax Planning
Indonesia’s New UMKM Final Income Tax Policy under PP No.20/2026 Explained
Indonesia permanently sets final income tax (PPh Final) at 0.5% for eligible small businesses and emphasizes integrity by disallowing deductions for corruption-related costs.
By NomadicTax Research Team • 6 min read • September 2, 2026
## Overview of PP No. 20/2026
In June 2026, Indonesia enacted **Government Regulation (Peraturan Pemerintah) Number 20 of 2026**, which amends PP 55/2022 regarding income tax treatment for **Usaha Mikro, Kecil, dan Menengah (UMKM)**—micro, small, and medium enterprises. Key points include:
- Eligible individual taxpayers and sole proprietorships (perusahaan perorangan) with **annual turnover up to IDR 4.8 billion** (approx. USD 300,000) are subject to a **final income tax rate of 0.5%**, **permanently**. ([pajak.go.id](https://www.pajak.go.id/id/siaran-pers/pph-final-umkm-tetap-05-persen-djp-perkuat-ketepatan-sasaran?utm_source=openai))
- Cooperatives receive the same 0.5% final tax rate and maintain the four-year eligibility period since registration; transition rules apply to those previously under PP 55/2022. ([pajak.go.id](https://www.pajak.go.id/id/siaran-pers/pph-final-umkm-tetap-05-persen-djp-perkuat-ketepatan-sasaran?utm_source=openai))
- Notably, costs related to corrupt acts or bribery are **not deductible**—an integrity measure intended to align tax policy with ethical standards. ([pajak.go.id](https://www.pajak.go.id/id/siaran-pers/pph-final-umkm-tetap-05-persen-djp-perkuat-ketepatan-sasaran?utm_source=openai))
## Practical Implications & Tips for UMKM
### Who benefits most?
- **Solo owners or individual business operators** whose turnover does not exceed IDR 4.8 billion.
- **Small cooperatives** that qualify under the criteria.
### Considerations for other business structures
- Entities such as firmas, CVs or PTs that do **not meet UMKM criteria** must use standard (non-final) income tax rates from the outset. ([pajak.go.id](https://pajak.go.id/index.php/id/siaran-pers/kanwil-djp-jakarta-timur-sosialisasikan-peraturan-pemerintah-nomor-20-tahun-2026?utm_source=openai))
- Businesses close to the turnover threshold should monitor sales closely to determine eligibility each year.
### Actionable Strategies
- Keep precise records of **turnover and sales**, not just profits, to confirm whether you remain under the limit.
- Maintain clean accounting, especially excluding bribes or illegal payments, since those are not deductible.
- Use the grace period if currently under final tax regime to adjust business plans if you will exceed thresholds.
## Broader Tax Planning Considerations
- A 0.5% tax on **turnover** simplifies compliance—but some businesses might prefer standard rates if profit margins are high.
- For UMKM above threshold or choosing general scheme: explore credits, deductions, and business expense recognition under the standard PPh regime.