E-COMMERCE MERCHANTS NOW SUBJECT TO 0.5% INCOME TAX WITHHOLDING
The promulgation of Minister of Finance Regulation (PMK) No. 37 of 2025, which governs the taxation mechanism for the e-commerce sector, stipulates that electronic commerce merchants transacting through online marketplaces such as Tokopedia, Shopee, and TikTok Shop, are now subject to a 0.5% Income Tax withholding under Article 22 of the Income Tax Law, imposed on electronic commerce transactions.
Who Is Subject to the 0.5% Final Income Tax?
Pursuant to Article 1 of Law No. 7 of 1983 concerning Income Tax, the tax is imposed upon individual taxpayers and legal entities on income earned or received within a fiscal year. Under the new regime, e-commerce merchants whose annual gross revenue exceeds IDR 500 million are liable to a 0.5% final Income Tax.
The tax base is gross income (gross turnover) rather than net profit. This is codified in Article 7(2a) of Law No. 7 of 2021 on the Harmonization of Tax Regulations (HPP Law). Further, Article 8(1) of MoFR No. 37/2025 prescribes that the amount of Income Tax under Article 22 is calculated at 0.5% of gross turnover received or accrued by domestic merchants, as stated in billing documents, excluding Value-Added Tax (VAT) and Luxury Goods Sales Tax (LST).
Appointed Withholding Agents in E-Commerce Transactions
The obligation to act as withholding agent for the collection of Income Tax rests with designated third parties, as defined in Article 2(1) of MoFR No. 37/2025, namely Electronic Commerce Providers (PPMSE) both domestic and foreign, that meet specific criteria under Article 3(1)-(2)—such as the use of escrow accounts and exceeding transaction value or user thresholds set by the Minister of Finance. The appointment is made by the Director General of Taxes based on a delegation of authority from the Minister of Finance in accordance with Article 4.
Exemption Threshold According to the HPP Law
Under Article 7(2a) of the HPP Law, certain tax reliefs are available for Micro, Small, and Medium Enterprises (MSMEs):
- Taxpayers with annual gross revenue not exceeding IDR 500 million are exempt from final Income Tax.
- Where gross revenue exceeds IDR 500 million, the 0.5% rate applies only to the portion exceeding the threshold.
Illustrative Example:
Component
Annual Gross Revenue Rp1.000.000.000
Non-Taxable Portion Rp500.000.000
Taxable Portion Rp500.000.000
0.5% Final Income Tax Due Rp2.500.000
Exceptions from Article 22 Income Tax Withholding
Despite the obligation imposed on digital platforms to withhold Article 22 Income Tax, exemptions apply under certain conditions:
- Individual sellers with gross turnover up to IDR 500 million who have submitted a sworn declaration letter as per regulatory requirements;
- Provision of delivery services by individual partners of app-based transportation platforms;
- Sellers who have obtained a Tax Exemption Certificate (Surat Keterangan Bebas / SKB);
- Sales of prepaid mobile phone credits and SIM cards;
- Sales of jewelry, gold bullion, and gemstones by manufacturers or merchants;
- Transfers of land and/or building rights, including preliminary sale and purchase agreements and amendments thereto.
Conclusion
PMK No. 37 of 2025 marks a pivotal effort to modernize Indonesia’s tax system in alignment with the digital economy. The imposition of a 0.5% final Income Tax under Article 22 on gross revenue of online merchants seeks to:
- Enhance tax compliance and transparency;
- Provide exemptions for MSMEs with turnover below IDR 500 million;
- Promote a fair, efficient, and sustainable taxation framework in the digital era.
Legal References
- Law No. 7 of 1983 on Income Tax;
- Law No. 7 of 2021 on the Harmonization of Tax Regulations (HPP Law);
- Minister of Finance Regulation No. 37 of 2025 on the Appointment of Other Parties as Income Tax Withholding Agents and the Procedures for Collection, Remittance, and Reporting of Income Tax Withheld by Such Parties on Income Received or Earned by Domestic Merchants through Electronic Trading Mechanisms.
Author :
Muhammad Arief Ramadhan, S.H.
Dina Normanza Sibagariang
Editor :
Muhammad Arief Ramadhan, S.H.