Entrepreneurs and SME operators in Indonesia are asking the government to increase eligibility for VAT exemption in order to boost competitiveness.

Currently, companies with annual turnover of up to Rp 600 million (US$67,150) are VAT-exempt. The Indonesian Young Entrepreneurs Association (Hipmi) would like to see this threshold raised to Rp 2.5 billion ($280,000), matching the legal definition of a SME, but available only to businesses in certain sectors. The association did not reveal the sectors it proposed to the Finance Ministry, but hinted that export-oriented SMEs should not require incentives above what they have already.

Chairman of the association, Erwin Aksa, said SMEs were “burdened with high interest rates and high cost due to poor infrastructure,” and facing increased competition.

While the plan would appear on the surface to decrease government revenues, many smaller businesses in Indonesia avoid tax and its complicated processes altogether by failing to register or through incorrect bookkeeping. Simplifying the rules would encourage more to register as taxpayers, improve cashflow, and result in more revenue in the long run. The government said it was studying the suggestions and analyzing the impact of further exemptions.

source & article: The Jakarta Globe