Indonesia introduces VAT on Digital Services

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In July 2019, Indonesia announced its plans to introduce VAT on online supplies of goods and digital services provided by offshore businesses. This is expected to be implemented in 2020. Essentially, the new VAT rules target e-commerce firms, content providers, start-ups and other Internet-based economic activities. The VAT will also be due on a range of electronic services, including apps; download and streaming; e-books; cloud software; subscriptions; membership fees and gambling.

With these future regulations, Indonesia wishes to follow the best practices that have been implemented successfully in Japan and Australia. Surprisingly, this is not the first time the government announced such a tax regulation. In April 2019, new regulations targeting online marketplaces, excluding social media-based e-commerce, were supposed to be implemented. If it had happened, online vendors with revenue exceeding IDR 4.8 billion (US$337,000) would have to pay VAT at a rate of 10%. At the last minute, the regulation was canceled due to confusion among the public.

According to the 2018 Google – Tomasek report the Indonesian Internet economy is the largest and fastest-growing in Southeast Asia. In 2018, 150 million people fueled the Internet economy to almost 30 billion US dollars in gross merchandise value and moreover, it is expected to grow to triple in 5 years from now. The numbers are big, however, economists suggest that it may not be wise for the country to start off right away with a 10% VAT on digital services: the nation’s digital sector is still expanding and it didn’t achieve its full potential. Experts said that a lower rate of 5% could be just a right as the government learns how to fairly impose the tax on everyone.

We are at your service! If you foresee that these changes have an impact on your business, we are here to help. Global VAT Compliance specializes in helping international business be VAT compliant around the world offering VAT solutions to your company.

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