In Pandemic, Indonesia Introduces Tax Policy on Digital Goods and Services

With the public shifting to the online world, the Indonesian government found it necessary to implement tax policy on digital goods and services.

The taxation of the so-called digital economy has been among the top agendas of many countries. Governments are doing so to even the playing field and sustain welcoming global trading.

Indeed, it is no different from Indonesia’s tax policy on digital goods and services. The country decided to implement such a regulation amid the accelerated shift to online business and remote working. The change is because of the coronavirus pandemic limiting physical interaction.

This, in addition to the economy, slowing down and affecting the national government’s financial performance.

In October 2020, the government announced that additional eight technology firms were included in the list of businesses collecting 10-percent value added tax (VAT) in Indonesia. The said tax is applicable to all goods and services sold by these companies in the country.

According to the Finance Ministry, the recently included firms are Alibaba Cloud (Singapore) Pte. Ltd, Microsoft Corporation, Nexmo Inc, Microsoft Regional Sales Pte Ltd, GitHub Inc., UCWeb Singapore Pte Ltd, To The New Singapore Pte Ltd, and Coda Payments Pte Ltd.

Moreover, these companies will begin charging VAT on November 1, 2020.

Following the tax policy on digital goods and services, the Taxation Directorate General has assigned 36 technology firms to collect VAT on their goods and services since July.

Under Law No. 2/2020, certain foreign digital service firms are charging VAT. These companies have minimum annual sales of RP600 million coming from at least 12,000 Indonesian users.

The government-appointed Google Asia Pacific, Netflix, and Facebook are the so-called VAT collectors.

Besides, LinkedIn Singapore, two subsidiaries of Twitter, Zoom Video Communications, Skype Communications, McAfee Ireland, and Microsoft Ireland Operations, commenced VAT collection on October 1, 2020.

Booming Technology Sector in Indonesia

Indonesia is a big market for digital products and services, Danny Darussalam Tax Center research partner Bawono Kristiaji told The Jakarta Post.

Kristiaji said that tax revenues are expected to climb gradually as the government assigns more companies collecting VAT from Indonesian consumers.

The researcher added that launching a tax regime covering tech firms was one of the best strategies to increase government revenues amid the coronavirus pandemic.

The state revenue amounted to RP 1.03 quadrillion as of August, representing 60.8 percent of the full-year collection goal. The figure is showing a 13.1-percent year-on-year plunge because of lower tax and non-tax revenue.

In the same period, tax revenue skidded by 15.6 percent to RP 679.9 trillion following the deep cuts in corporate and import tax.

Impact of Tax Policy on Digital Goods and Services

The digital taxation policy of Indonesia is seen to be greatly affecting multinational technology firms. According to Google, Temasek Holdings, and Bain & Company, the country’s internet company is anticipated to reach $130 billion by 2025.

These companies may deal with a decline in the customer base as prices for digital services and products are seen to increase.

In addition, these technology firms would have to come up with a sound financial projection. It factors in the incremental costs of the additional taxes.

Meanwhile, these multinational technology firms are hoping for a uniform set of tax legislations across the world. This, as an inclusive framework on the digital economy, is expected to be concluded by 2020.

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