Firms Bunching Response to Indonesian Income Tax Threshold

Ekananda Anggih Nurfauzi, Chaikal Nuryakin, Bramastia Candra Putra


Presumptive tax policy is implemented internationally in common in order to ease the SME’s tax administration. Firms have an opportunity to respond or not to a certain tax policy in order to get lower tax burdens. There is a presumptive tax policy implemented in Indonesia which affects firms’ behavior in gaining and reporting their incomes. Firms tend to choose to have their incomes below the threshold that has lower tax burdens. As a developing country, Indonesia has certain firms’ charactheristics and systems that differs from developed country’ firms so there is a necessity to know that the responses of Indonesian firms regarding the implementation of presumptive tax policy. This study aims to analyze firms’ responses regarding presumptive tax implementation especially in Indonesia with a certain threshold of IDR 4.8 billion since 2013. This study uses the bunching estimation method dan firms’ tax return data from 2011 to 2016, that differs from other studies in which use survey data. Our study concludes that the presumptive tax implementation based on turnover value induces negative bunching phenomenon in Indonesia due to the lower tax burden for firms whose turnover value is above the threshold. This negative bunching indicated by the results of significant bunching estimation analysis in the period after the presumptive tax policy implemented. In contrast to the developed country’ firms, Indonesian firms tend to stay above the threshold, rather than below, to gain lower tax burden.


Bunching, Corporate income tax, Firm behavior, threshold.

Full Text:



Adams, C., & Webley, P. (2001). Small Business Owners’ Attitudes on VAT Compliance in The UK. Journal of Economic Perspectives, 22, 195–216.

Almunia, M. (2013). Size-Dependent Policies and Firm Behavior. University of California, Berkeley.

Almunia, M., & Lopez-rodriguez, D. (2018). Under the Radar: The Effects of Monitoring Firms on Tax Compliance. American Economic Journal: Economic Policy, 10(1), 1–38.

Bastani, S., & Selin, H. (2014). Bunching and non-bunching at kink points of the Swedish tax schedule. Journal of Public Economics, 109, 36–49. https://doi. org/10.1016 /j.jpubeco.2013.09.010

Baumeister, R. F. (1982). A self-presentational view of social phenomena. Psychological Bulletin, 91(1), 3–26.

Best, M. C., Brockmeyer, A., Kleven, H. J., Spinnewijn, J., & Waseem, M. (2015). Production versus Revenue Efficiency with Limited Tax Capacity: Theory and Evidence from Pakistan. Journal of Political Economy, 123(6), 1311–1355. 10.1086 /683849

Best, M. C., & Kleven, H. J. (2017). Housing Market Responses to Transaction Taxes : Evidence From Notches and Stimulus in the U.K. Review of Economic Studies, 85(1), 1–37. 10.1093 /restud/rdx032

Brashares, E., Knittle, M., Silverstein, G., & Yuskavage, A. (2014). Calculating the Optimal Small Business ExemptionThreshold for a U.S. VAT. National Tax Journal, 67(2), 283–320. /10.17310/ntj. 2014.2.01

Chetty, R., Friedman, J. N., Olsen, T., & Pistaferri, L. (2011). Adjustment Costs, Firm Responses, and Micro vs. Macro Labor Supply Elasticities: Evidence from Danish Tax Records. The Quarterly Journal of Economics, 126(2), 749–804. /qje/qjr013

Chetty, R., Guren, A., Manoli, D., & Weber, A. (2011). Are micro and macro labor supply elasticities consistent? A review of evidence on the intensive and extensive margins. American Economic Review (Vol. 101, pp. 471–475). 10.1257/aer.101.3.471

Clair, T. S., & Cook, T. D. (2015). Difference-in-Differences Methods in Public Finance. National Tax Journal, 68(2), 319–338.

Dwenger, N., Kleven, H., Rasul, I., & Rincke, J. (2016). Extrinsic and intrinsic motivations for tax compliance: Evidence from a field experiment in Germany. American Economic Journal: Economic Policy, 8(3), 203–232. /10.1257/pol. 20150083

Fack, G., & Landais, C. (2016). The effect of tax enforcement on tax elasticities: Evidence from charitable

contributions in France. Journal of Public Economics, 133, 23–40. j.jpubeco.2015.10.004

Gebresilasse, M. M., & Sow, S. (2015). Firm Response to VAT Registration Threshold in Ethiopia. Columbia University.

Harju, J., & Matikka, T. (2016). The elasticity of taxable income and income-shifting: what is “real” and what is not? International Tax and Public Finance, 23(4), 640–669. s10797-016-9393-4

Harju, J., Matikka, T., & Rauhanen, T. (2016). The effects of size-based regulation on small firms: evidence from VAT threshold. CESifo Working Paper Series.

Heide, J. C., & Ardal, K. O. (2017). Size Management at Regulatory Thresholds by Norwegian Companies. BI Norwegian Business School.

Hsieh, C.-T., & Olken, B. A. (2014). The Missing “Missing Middle”; Source: The Journal of Economic Perspectives, 28(3), 89–108.

Huang, J., & Rios, J. (2016). Optimal tax mix with income tax non-compliance. Journal of Public Economics, 144, 52–63. /j.jpubeco.2016.10.001

Kanbur, R., & Keen, M. (2014). Thresholds, informality, and partitions of compliance. International Tax and Public Finance, 21(4), 536–559.

Ministry of Finance. PMK-197 / PMK.03 / 2015 concerning Amendments to Minister of Finance Regulation Number 68 / PMK.03 / 2010 concerning Limitation of Small Entrepreneurs in Value Added Tax (2013). Indonesia. Retrieved from http: // www. Sjdih.depkeu / fulltext / 2013/197 ~ PMK .03 ~ 2013Per.HTM

Kleven, H. J., Knudsen, M. B., Kreiner, C. T., Pedersen, S., & Saez, E. (2011). Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark. Econometrica, 79(3), 651–692.

Kleven, H. J., & Waseem, M. (2013). Using Notches to Uncover Optimization Frictions and Structural Elasticities: Theory and Evidence from Pakistan. The Quarterly Journal of Economics, 128(2), 669–723.

Kleven, H. J. (2016). Bunching. Annual Review of Economics, 8(1), 435–464. /annurev-economics-080315-015234

le Maire, D., & Schjerning, B. (2013). Tax bunching, income shifting and self-employment. Journal of Public Economics, 107, 1–18. /10.1016/j.jpubeco.2013.08.002

Liu, L., & Lockwood, B. (2015). VAT Notches. CEPR Discussion Papers, (May).

Organization for Economic Cooperation and Development. (2009). OECD Policy Roundtable Report.

Onji, K. (2009). The response of firms to eligibility thresholds: Evidence from the Japanese value-added tax. Journal of Public Economics, 93(5–6), 766–775. j.jpubeco.2008.12.003

Pagano, P., & Schivardi, F. (2003). Firm size distribution and growth. Scandinavian Journal of Economics, 105(2), 255–274. 9442.t01 -1-00008

Saez, E. (2010). Do Taxpayers Bunch at Kink Points? American Economic Journal: Economic Policy, 2(August), 180–212.

Slemrod, J. (1990). Optimal Taxation and Optimal Tax Systems. Journal of Economic Perspectives, 4(1), 157–178.

Yasuda, T. (2005). Firm growth, size, age and behavior in Japanese manufacturing. Small Business Economics, 24(1), 1–15.



  • There are currently no refbacks.

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.