Transitioning MSMEs to the Normal Tax System

It is not straightforward to urge and prepare MSMEs to participate in the standard tax system. MSMEs must have adequate tax knowledge and competence to comply with their tax obligations after they enter the standard tax system. The research aims to develop a strategy for transitioning to a normal tax system from the perspective of both the taxpayer and the government, including the barriers encountered. This study used a qualitative approach and an in-depth interview to obtain data. A review of the literature was conducted, as well as in-depth interviews with DGT officials, tax scholars, tax practitioners, and SME taxpayers. The most recent rule on final income tax for MSMEs establishes a time restriction for applying the final income tax rate and recording. The grace period was designed to teach MSMEs how to manage their bookkeeping and other obligations under the conventional tax system while growing their business. According to the study's findings, MSMEs taxpayers do not have a distinct strategy for dealing with the conventional tax system. They do, however, have commercial plans that overlap with the transition strategy. On the other hand, the government, through DGT, launched a plan called Business Development Services. The challenges of human resources and initiative affect both government and MSMEs taxpayers. This article examines the strategic procedures necessary to convert MSME taxpayers from a presumptive tax regime to the implementation of a conventional tax system, as well as the barriers encountered in achieving tax equity. The report proposes a transition strategy from a presumptive, tax regime to the implementation of a conventional tax system on the hard-to-tax sector by the Indonesian tax authorities and MSME taxpayers.


Introduction
MSMEs are critical to Indonesia's economy. The MSME sector is referred to as the most strategic sector in the country as it affects the lives of a large number of people (Zebua, 2016). MSMEs accounted for at least 60% of Indonesia's GDP in 2017. Seeing the number of MSME players increase year after year is a great development, particularly for state revenues in the tax sector. In terms of taxation, the huge number of MSME players reflects the large number of income tax subjects who can become taxpayers, hence increasing the MSME sector's tax revenue. Regrettably, the MSME sector is frequently classified as a Hard-to-Tax (HTT) sector by the tax authorities. Bird and Wallace (2003) said that it is impractical to tax the HTT sector using the same tax approach as the conventional sector. For instance, in the MSME sector, players would encounter challenges if they requested to perform standard tax calculations with bookkeeping in accordance with general tax regulations. As a result, a streamlined special tax system is required to facilitate the entry of the MSME sector into the special tax system. One of the tax system's simplifications is the application of a presumptive tax. Presumptive taxation is a method of simplifying the tax system by employing an assumed tax base rather than one based on normal or anomalous sector-specific original income (Dube, 2018). The goal of applying a presumptive tax is to provide a pathway for taxpayers in the HTT sector who are currently outside the tax system to enter the special tax system.
Later on, the taxpayer will gradually transition to the traditional tax system. The Government Regulation of the Republic of Indonesia No. 46 of 2013 (GR 46/2013) on Income Tax on Income from Businesses Received or Accrued by Taxpayers with Certain Gross Income is one example of a presumptive tax policy for the MSME sector. Individual and corporate taxpayers having a gross income of up to IDR 4.8 billion are covered by the program. Income tax can be calculated by multiplying the gross income by the final income tax rate of 1%. In 2018, GR 46/2013 was repealed and replaced by Government Regulation of the Republic of Indonesia No. 23 of 2018 (GR 23/2018) on Income from Businesses Received or Accrued by Taxpayers with a Certain Gross Income. GR 23/2018 retains numerous provisions from GR 46/2013. Nonetheless, GR 23/2018 modifies some of its provisions. To begin with, the difference in the final income tax rate came as a result of a drop in the final income tax rate. Initially, GR 46/2013 imposed a 1% cap, which was reduced to 0.5 percent by GR 23/2018. Second, there is a time period during which the final income tax regulations may be used.
Previously, pursuant to GR 46/2013, there was no time limit on taxpayers' use of final income tax. This indicates that as long as taxpayers' gross income from business activities does not exceed IDR 4.8 billion per year.
They can use the requirements of GR 46/2013 to compute their income tax. Since the enactment of GR 23/2018, the final income tax rate of 0.5 percent has been subject to a time constraint. It is limited to a maximum of seven years for individual taxpayers, four years for corporate taxpayers organized as cooperatives, limited partnerships, or enterprises, and three years for corporate taxpayers organized as corporations. After the period specified in GR 23/2018 expires, the taxpayer is required to calculate income tax in accordance with the normal tax system, namely in accordance with the tariff provisions set forth in Article 17 paragraph (1) letter a, Article 17 paragraph (2)a, or Article 31E of the Income Tax Law. Thus, a strategy is required to ensure that the MSME taxpayers' transition to a standard tax system is successful. The plan is not limited to MSME taxpayers who must increase their taxation capacities to comply with GR 23/2018 but also with the tax authorities' strategy. However, it is indisputable that in developing the strategy for MSME taxpayers' transition to a standard tax system, MSME taxpayers and DGT encountered a number of roadblocks. Against this backdrop, the primary topic that will be examined is the DGT's and MSME taxpayers' strategy for preparing MSME taxpayers for the transition to a normal tax system following the end of the 0.5 percent Final Income Tax usage period on gross income. The report next analyses the barriers that DGT and MSME taxpayers encounter while implementing a strategy for transitioning to the standard tax system.

Literature Review
Hard-to-Tax (HTT): HTT does not have a broadly accepted definition. On the other hand, Terkper (2003) defines HTTs as taxpayers who generally do not register freely. When taxpayers register, they typically do not maintain comprehensive books and records, do not report a notification letter (SPT), and frequently breach tax requirements. Bird and Wallace (2003) cite the following features of organizations classified as HTT: corporations and individuals that are generally small in size and do not keep adequate books and records but are taxable; (ii) entities and individuals whose activities are large enough to be taxed under the normal tax system but are tax evaders, some of whom operate completely outside the fiscal radar; and (iii) large and medium-sized entities that are capable of complying with their tax obligations under the normal tax system but do not.
Presumptive Tax: According to Dube (2018), presumptive taxation is "... a simplified regime applied to the presumed, rather than actual, income of regular or atypical enterprises." Simply put, presumptive taxation is a more straightforward technique of calculating income tax than the conventional approach. Presumptive taxes are used for a variety of reasons. The use of presumptive tax is motivated by the ease with which calculations may be performed. The government also expects that by simplifying rules, the compliance costs faced by taxpayers will be reduced, thereby motivating taxpayers to comply willingly (Ogembo, 2019). Porter and Lee (2015) define strategy as "the process through which an organization makes the decisions necessary to meet customer needs." Additionally, Kavale (2012) defines strategy as a framework for establishing long-term goals and objectives, guiding the adoption process and allocating the resources necessary to accomplish those goals. According to Assauri (2013), a strategy must perform six strategic roles concurrently to be effective. The six functions are as follows: communicating the desired outcome to others; connecting or connecting the organization's strengths and advantages to the opportunities in its environment; capitalizing on or exploiting current successes and successes while investigating new opportunities; generating and generating more resources than are currently available; coordinating and directing the organization's future activities or activities and responding to and reacting to newly encountered opportunities.

Research Method
This study was conducted with a qualitative approach to gain an understanding of the tactics used by the DGT and MSMEs to prepare for the transition to a normal tax system following the implementation of GR 23/2018's regulations. Additionally, this paper assesses the obstacles that DGT and MSME encountered while implementing the approach. The data was gathered through a review of the literature and in-depth interviews with DGT officials, tax scholars, tax practitioners, and small business taxpayers. MSME taxpayers who engaged in tax socialization and the Business Development Services (BDS) program were recruited as informants for the study.

Results and Discussion
The Directorate General of Taxes' MSME Taxpayer Transition Strategy towards a Normal Tax System: In GR 23/2018, a provision is made for a time limit on the transition period to the normal tax system. From that point forward, DGT provides MSME taxpayers with the option to study bookkeeping, which they will utilize when they transition to the standard tax system. On the other hand, DGT must develop a strategy to accomplish this objective.
A. Business Development Service (BDS) Program: The presumptive tax system is appropriate for bringing taxpayers who were previously untaxed into the normal tax system. To use an analogy, MSME taxpayers must understand how to "use the bridge" built by the presumptive tax to migrate to a conventional tax system. As a result, taxpayer education and support are required to assist MSME taxpayers in determining how to "cross" from the presumptive tax system to the conventional tax system. The BDS program is critical to the transition strategy of MSME taxpayers to a standard tax system. The BDS program is administered by the DGT's Division of Extension, Service, and Public Relations. Since 2015, this initiative has been focused on the development of MSME enterprises in Indonesia. According to SE-13/PJ/2018, the BDS program is one of the tools for developing and supervising MSME taxpayers in fostering and encouraging sustainable company growth to boost tax awareness, engagement, and compliance. DGT can use the existence of BDS to assist and educate MSME taxpayers as they migrate to the regular tax system. Regrettably, not all MSME taxpayers are aware of or get instruction about the BDS program. Two factors may contribute to the BDS program being inaccessible to all MSME taxpayers. To begin with, the scope is excessively broad, making it impossible for the tax office to reach all MSME taxpayers. Second, the tax office's performance in implementing the BDS program has not been optimal. Because the BDS program is distinct from tax counseling, it must be conducted at least twice in a fiscal year.

B. Building Relationships with MSME Taxpayers:
The interaction and pattern of relationships developed between DGT and MSME taxpayers would be seen in the implementation of the BDS program. Technical implementation of BDS will ultimately be left to the discretion of individual tax offices. The audience for BDS activities held by tax authorities is often divided into two categories: MSMEs taxpayers assisted by the tax office and MSME taxpayers invited by the tax office. There is a distinction between MSME taxpayers who are specifically cultivated by the tax authorities and MSME taxpayers who are merely employed as audiences in the office's BDS program. There is no guarantee that the interaction between UMKKM taxpayers and taxes on the BDS implementation program will be limited. However, placing MSME taxpayers under the jurisdiction of tax authorities with high-level meetings will foster a sense of confidence between the two parties. The tax authority's connection with MSME taxpayers is built on trust, which makes it easier for both sides to carry out the transition strategy. Additionally, trust has a good effect on taxpayers' voluntary tax compliance (Djajanti, 2020). On the other hand, the strong contact established can enable the tax authorities to monitor the readiness of MSME taxpayers in real-time and to continue guiding MSME taxpayers through the transition process to a standard tax system.

C. Collaboration with a Variety of Agencies:
Cooperation with other agencies is a sort of engagement between the DGT and its external environment, which in this case is the MSME taxpayer. The objective is to assist DGT in accomplishing its objectives, in this example, the MSME taxpayer's strategy for transitioning to a normal tax system. Additionally, collaboration is underway to establish data integration for MSME taxpayers, allowing for more targeted policymaking. DGT has cooperated with at least 17 institutional ministries, 26 state-owned enterprises, and six other agencies to develop MSME firms in Indonesia. Recently, DGT partnered with Google Indonesia to help grow Indonesia's MSME sector. and Easy Pay" are the acronyms for the Triple E. The Triple E application was established in response to DGT's study and observations of the previous period's BDS program. As a supporting tool for the DGT, the Triple E application assists in preparing MSME taxpayers for a standard tax system. As envisioned, the Triple E application must aid DGT in educating on the proper use of bookkeeping, computing taxes at general rates, and delivering learning modules linked to establishing MSME taxpayer enterprises.

E. Formulating Simple Financial Reports for MSMEs:
One of the difficulties faced by MSME taxpayers is their incapacity to perform bookkeeping, particularly for individual taxpayers. Prakosa and Hidayatullah's (2019) interviews with Batik MSME players in the DI Yogyakarta Province revealed that MSME actors continue to struggle with effectively managing financial statement bookkeeping. DGT collaborates with the Fiscal Policy Agency to create a financial report that MSME taxpayers may readily comprehend. The simple bookkeeping structure is intended to make it easier for MSME taxpayers to track their income and expenses. If the income and costs can be determined based on the taxpayer's condition, the MSME taxpayer's tax will be computed in line with the MSME taxpayer's additional economic potential. Thus, the tax calculation is adjusted to the taxpayer's ability to pay, and a sense of justice is created in the payment of MSME taxpayers' taxes. Apart from simplicity, the primary factor in bookkeeping for MSME taxpayers is how to communicate with and guide the tax office regarding how the bookkeeping is carried out. Consistent direction from the tax office to MSME taxpayers on how to conduct bookkeeping in line with tax regulations is a critical factor in deciding the MSME taxpayer's transition strategy to a workable conventional tax system. No matter how straightforward the bookkeeping is, without advice and support from the tax office, a simple financial report formulation will not be straightforward.

Taxpayer Transition Strategy for MSMEs towards a Normal Tax System:
Although MSME taxpayers are aware that a day will come when they must convert to a traditional tax system based on bookkeeping, they have ruled this possibility out in favor of focusing on GR 23/2018. That is not to say that MSME taxpayers do not prepare anything. By and large, MSME taxpayers pursue tactics targeted at growing their businesses. The taxpayer's strategy includes a mission that is consistent with the strategy's objective of preparing for the normal tax system. Indirectly, MSME taxpayers' tactics are not just about migrating to a conventional tax system; they are also about business development.
Participate in the MSME Community: According to in-depth interviews with five MSME informants, the first step for MSME entrepreneurs to develop their firm is to join an MSME community. Joining the MSME community is motivated by a genuine desire to discover and learn more about how to grow their firm. Another reason for MSME entrepreneurs to join an MSME community is to strengthen relationships with other MSME entrepreneurs. Along with business development, the MSME community can serve as a venue for MSME entrepreneurs to learn about or gain additional knowledge regarding MSMEs' taxation. As a result, the MSME community can serve as an entry point for DGT to educate the public about taxes.
Developing Business Strategies: According to Porter and Lee (2015), strategy is about making the organizational decisions necessary to meet the requirements of the taxpayer. The business strategy is one of several that align with the MSME taxpayer's transition strategy to a conventional tax system. The provision of time is not only intended to educate MSME taxpayers about bookkeeping but also to allow for the development of MSME businesses. Not only will tax-related material be discussed during DGT seminars and workshops. However, there are additional debates, such as digital marketing, packaging, business legality, financial technology, financial management, and company bookkeeping, that can have a direct impact on the development of MSME enterprises.
Acquire Knowledge about Bookkeeping: According to Rohman, Zulaikha, Rahardjo, and Harto (2011), the competency of MSMEs in Indonesia is still inadequate, which affects their compliance with tax duties. It demonstrates that small businesses and individuals lack proper bookkeeping but have tax potential. In-depth interviews with five sources of MSME taxpayers revealed that they had been provided with information on accounting and the creation of sound financial statements. The information was gleaned via business seminars and BDS programs in which he participated. The outcomes of the bookkeeping training have begun to be implemented by MSME taxpayers in their company activities. Even though they are still in the learning process, they continue to attempt to apply the principles of bookkeeping given to them.

Constraints on Implementation of the Transition Strategy to a Normal Tax System for MSME Taxpayers
Limited Human Resources: According to the findings of in-depth interviews with MSME individual taxpayers, the entrepreneurs' status as a "one-man show" is identified as their primary impediment. Particularly for MSME individual taxpayers who must handle all aspects of the business on their own, from manufacturing to packaging, distribution, and marketing. They must continue to live their lives in addition to conducting business. While MSME individual taxpayers comprehend and can apply the tax office's bookkeeping instructions, consistency in doing so on a daily basis is considered a significant challenge.

MSME Taxpayers Are Unaware of the Reason for Limiting the Term of Regulations and Strategies that
MSMEs are Required to Prepare: The reason for GR 23/2018's time constraint should be communicated to MSME taxpayers in order for them to grasp it. However, in-depth interviews with MSME entrepreneurs revealed that the tax office never addressed the rationale for the regulation term in GR 23/2018. Inadequate information on MSME taxpayers regarding the time of application of GR 23/2018 and the necessary preparations is not necessarily a negative reflection on DGT's performance. Occasionally, MSME taxpayers become obsessed solely with the MSME Final Income Tax Rates, especially in light of the recent fall in Final Income Tax Rates. Although continual delivery of the purpose of limited time in use is GR 23/2018, it is critical for equalizing the frequency of objectives for DGT and MSME taxpayers.

DGT Activity and Initiative are Still Lacking:
The impediment is the inconsistency in the expense and effort expended by each tax office in implementing the BDS program. The BDS program will be implemented differently at each tax office based on their regulations, conditions, and preferences. There is a tax office in the area that is committed to developing MSMEs by continuously giving regular training. Other tax offices may have MSME villages that were created specifically for the purpose of developing MSMEs. However, it is not uncommon for the tax office to implement the BDS program for just the amount necessary to meet contractual obligations. The amount of effort expended by the DGT and tax office in fostering MSMEs, particularly in preparing MSME taxpayers to transition to a normal tax system, will have an effect on MSME taxpayers' perceptions of the DGT's performance and seriousness in fostering MSME taxpayers, as well as their own readiness. What needs to be done is to attempt to standardize the BDS program's application and results in each tax office. It is expected that each tax office will follow the same strategy.

Limited DGT Human Resources
A. Quantity of Human Resources: The issue of a lack of tax officers has developed into a tax issue in Indonesia. One of the actual situations is the application of the GR 46/2013 guidelines for MSME taxpayers in Semarang City, as Bandiyono and Sadry discovered via their investigation (2018). The study's findings indicated that tax office staff faced challenges as a result of a shortage of tax officers to provide services and socialization to MSME taxpayers. Due to the scarcity of human resources, implementing the MSME Taxpayer's transition strategy to a standard tax system in the field is hindered. This is because the MSME taxpayer's transition strategy to a conventional tax system will require significant assistance and education from tax officials charged with socialization via the BDS program.

B. Human Resources Capability:
Each tax office is required by the BDS program to educate MSME taxpayers on how to develop their businesses. This means that each tax office must conduct education outside of its normal socialization zone. Finally, the tax office encountered difficulties executing the BDS program due to the fact that the tax office did not generally have influence over business development. Along with the limits on the DGT's human resource capacity for implementing the BDS program, another impediment is the program's oversight, which is centralized at the Head Office.

MSME Activities and Initiatives:
There are still a significant number of MSME taxpayers who have been secretive about their compliance with their tax duties. It is the primary impediment to the MSME taxpayer's strategy for transitioning to a conventional tax system. If the MSME taxpayer is not forthcoming about the implementation of his tax obligations and the UMKM taxpayer does not respond positively, no matter how much work and expense the tax authority incurs, the educational effort will be in vain. Finally, the mindset of MSME taxpayers is critical in implementing the transition strategy for MSME taxpayers to a standard tax system.

Conclusion and Recommendations
The goal of implementing the provisions for the adoption of the 0.5 percent final income tax policy (GR 23/2018) is to allow time for MSME taxpayers to learn about bookkeeping and for DGT to educate MSME taxpayers facing the period's expiration. The DGT's transition strategies for MSME taxpayers to a normal tax system include the following: implementing the Business Development Service (BDS) program; establishing relationships with MSME taxpayers; collaborating with government and private institutions; developing the Triple E application and developing simple financial reports for MSMEs in collaboration with the Fiscal Policy Agency. MSME taxpayers make no extra preparations or strategies in anticipation of the normal tax system. That is not to say that MSME taxpayers have not planned anything. Indirectly, MSME taxpayers' strategies are not limited to transitioning to a normal tax system; they are also planning their business development, which includes the following: (a) joining the MSME community; (b) implementing a business strategy to grow their business through training, socialization, and workshops hosted by various parties; and (c) beginning to learn to do bookkeeping. MSME taxpayers' transition strategy to a standard tax system undoubtedly hits roadblocks along the way. This impediment is perceived from both the MSME and DGT perspectives, as the limits on the two are inextricably linked. On the MSME side, the barriers include the following: limited MSME human resources; MSME taxpayers are unaware of the rationale behind limiting the duration of regulations and strategies prepared by MSMEs; and a dearth of DGT activities and initiatives. Additionally, problems encountered on the DGT side include limited DGT human resources and a dearth of MSME activities and initiatives.

Recommendations:
The following recommendations are intended to assist MSME taxpayers in implementing a more traditional tax system transition strategy: a. The tax office should make data integration a priority to boost the volume of MSME transactions. This is a proactive measure designed to allow tax authorities to track the revenue generated by MSMEs. If the annual revenue of the MSME taxpayer exceeds IDR 4.8 billion, the MSME taxpayer is required to keep books. In the absence of complete data on MSME revenue, taxpayers will constantly claim that their revenue is less than IDR 4.8 billion.
b. To place a stronger emphasis on the growth of MSME taxpayers, each tax office should create its own MSME community. The goal is to establish a close relationship with the MSME community to foster confidence between them and the tax authorities. If each tax office cultivates an MSME community, it may be more aggressive in implementing the BDS program and other transition programs for MSME taxpayers to the conventional tax system. Additionally, they may use the MSME community to educate other MSME entrepreneurs about taxes, thus increasing the audience for both tax socialization and the BDS program. Additionally, the tax office has a more direct line of communication with MSME taxpayers. c. Rather than depending primarily on central DGT evaluations, the BDS program should be evaluated at each tax office. This is because the tax office is directly responsible for the BDS program's implementation on the ground. Additionally, this is to ensure that the tax office receives timely feedback on the implementation of the BDS program, allowing the tax office to continue improving its performance in teaching MSMEs taxpayers. Along with doing an evaluation of the BDS program, each tax office can determine whether MSME taxpayers are prepared to transition to a regular tax system. This is so that, upon the expiration of the period specified in government regulation 23/2018, the DGT can assess the extent to which MSME taxpayers are prepared and capable of moving to a normal tax system.