JAKARTA: Indonesia’s government is preparing a regulation to enable it to collect a 10% value-added tax on digital products from August, matching a similar levy already imposed on physical goods.
The rule will detail the range of products to be taxed and how the levies will be collected, according to a statement from Indonesia’s tax office.
Latest DataReportal reports show that as of January, internet usage in Indonesia stood at 64 per cent of the population or 175.4 million users, up 17 per cent or 25 million people from 2019.
Social media penetration was at 59 per cent or totalling 160 million users, representing an increase of 8 per cent or 12 million people from April 2019. These data shows good prospects for the digital economy and digital taxes.
The Indonesian Government has announced that the new tax will also cover subscriptions to film and music streaming services, purchases of online content and digital gaming are among the range of products and services that will be covered, the tax office said.
"While Indonesia has been planning to tax digital companies for years as a way to boost revenue, spending on products such as Netflix and Zoom has "soared amid the Covid-19 outbreak,” Finance Minister Sri Mulyani Indrawati said earlier this year.
Indonesia’s tax revenue dropped 3.1% annually in the January-April period as the contagion hit.
The government has cut this year’s economic growth forecast to 2.3%, while warning that it may contract.
Provisions in the new law have become a legal umbrella for governing taxation matters related to cross-border digital economic activities. This is in line with the earlier Government Regulation No. 80/2019 on trade through electronic systems, which also stipulates digital taxation arrangements.
The approach chosen by the government is based on the significant economic presence (SEP) of the subject. Income tax is imposed on electronic commercial transactions carried out by foreign tax subjects who meet the classification or provisions for SEP.
Perppu No. 1/2020, which has now become law, stipulates that the classification of SEP is based on several criteria, such as the gross circulation of consolidated business groups in Indonesia, sales in Indonesia and active users of digital media in Indonesia.
This also complements the same provisions in Government Regulation No. 80/2019, which states that the imposition of a significant presence is realized by criteria such as the number of transactions, transaction value, number of package shipments and/or the amount of traffic or access.
The SEP approach has been applied in several countries and regions, including Turkey (2016), the Slovak Republic (2017) India (2018) and the European Union (2018).
The SEP approach adopted by Indonesia will conflict with the provisions of Indonesia's tax treaties with partner countries. The contravention tax treaty only regulates the physical presence requirements, not the significance of economic presence. - Agencies
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