New tax rule prioritizes repayment of principal debt
PMK 71/2026 takes effect on 2 October, allowing administrative penalties to be reduced but not waiving taxes.
The Ministry of Finance has changed the mechanism for paying tax debts so that taxpayers' payments are first used to settle the principal debt, rather than being allocated proportionally with administrative penalties as before. The provision is set out in PMK Number 71 of 2026, a revision of PMK Number 118 of 2024, and has been in effect since 2 October 2026. Director General of Taxes Bimo Wijayanto said the change gives taxpayers a chance to complete their principal obligations while using facilities to reduce or eliminate administrative penalties, subject to requirements. The new rule also refines the deadline for a response letter following a review of objections. However, penalties arising from objection, appeal or judicial review proceedings remain ineligible for reduction or elimination. The government stressed the policy is not a tax amnesty and is expected to help UMKM cash flow.