Digital tax in Indonesia to be effective starting July

9 months ago . 2 min read
MP
Marella Putri
Writer at Forbes Indonesia
Digital tax in Indonesia to be effective starting July
Sri Mulyani Indrawati, Minister of Finance. Photo courtesy of Sri Mulyani Indrawati.

The Ministry of Finance announced that Indonesia would start imposing 10% of value-added tax on digital goods and services provided by foreign companies to Indonesian consumers, set to be effective by July 1, as stated in the regulation of the Ministry of Finance No.48/PMK 03/2020.

The government hopes that imposing VAT on these digital products will create a level playing field to all business players - between local and foreign players, as well as a traditional and digital business.

As stated by the Directorate General of Taxation: “By applying this regulation, digital products - music streaming subscription, film subscription, applications and games, and online services coming from abroad - will receive the same treatment as many other conventional products in public that have already been subjected to VAT, as well as similar digital products that are produced by local players.”

The regulation will apply to foreign providers who have surpassed particular transaction value and traffic set by the Directorate General of Taxation. Some that have been named are giant digital companies such as U.S-based ecommerce Amazon, film streaming app Netflix, the Swedish music streaming app Spotify, video-conferencing tool Zoom, which already has user bases in Indonesia.

Foreign providers who don’t own a physical presence in the country need to choose a representative in Indonesia to collect, pay, and report their obligations. Access to their products will be cut should they fail to do so, although the government is still formulating details of the implementation.

The digital tax regulation follows Article 6 of Perppu 01/2020 issued in early April, which aims to help the country’s financial condition in handling COVID-19 pandemic. It stated that the government would be able to impose VAT on intangible goods and/or services provided by a foreign individual or digital companies that have a significant economic presence in the country.

Netflix’s streaming service, for example, in a research published by Statista back in 2016, was estimated to generate around $76.6 million and 906,800 active subscribers in Indonesia by 2020. Amid COVID-19 pandemic, Netflix’s revenue in the first quarter hit $5.77 billion, increasing by 27.6% YoY. The company saw significant growth in membership starting in March, where lockdown and stay-at-home policies began to be implemented in many countries.

MP
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Marella Putri
Writer at Forbes Indonesia
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