Indonesia taxes tech companies through new regulation

The Indonesian government has officially assumed the authority to tax digital companies operating in the country following the issuance of a new government regulation in lieu of law (Perppu) on Tuesday. The Perppu, which takes effect on Tuesday and aims to support the government’s efforts to fight the adverse economic impacts of the COVID-19 pandemic, states that the companies will be charged value added tax (VAT) on taxable intangible goods and/or services sold through electronic platforms.

The government also charges income tax or electronic transaction tax on e-commerce activities carried out by foreign individuals or digital companies with a significant economic presence, according to Article 6.

The significant economic presence will be determined through the companies’ gross circulated product, sales and/or active users in Indonesia, the Perppu reads. Those with a significant economic presence will be declared permanent establishments and, thus, are subject to domestic tax regulations.

“Indonesia’s tax base will move toward digital taxation as online transactions have been growing significantly, especially during the COVID-19 pandemic,” Finance Minister Sri Mulyani Indrawati said during a teleconferenced press briefing on Wednesday.

She said companies like streaming service Netflix and online meeting app Zoom are a few examples of foreign businesses with a significant economic presence in the country.
A recent report by Statqo Analytics revealed that active Zoom users increased by 183 percent last month, especially since most businesses in the country implemented work-from-home on March 16.

The government has struggled to tax digital companies that have limited or no physical presence in Indonesia but pocket a significant amount of revenues from the country. It previously incorporated regulations about digital tax in the omnibus bill on taxation submitted to the House of Representatives in February for deliberation.

The government and the House have yet to start the deliberations.

The Perppu also states that if the government cannot declare a digital company a permanent establishment because of the existence of a tax treaty with a certain country, it will then charge an electronic transaction tax on the company’s sales in Indonesia.
Further provisions on the rates, object and calculation of the income tax and the electronic transactions tax will be regulated in a government regulation (PP).

Article 7 regulates that digital companies that fail to comply with the rules would face an administrative sanction and even have their internet access cut by the telecommunication minister.

Source Credit – Eisya A. Eloksari (The Jarkata Post)

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