Indonesia’s e-commerce tax plan faces resistance

JAKARTA: Indonesia’s plan to tax e-commerce transactions is drawing resistance from the country’s largest online retailers, which argue the levy will throttle the growth of a nascent industry that’s drawn billions of dollars in foreign investment.

The government should review the decision to tax online transactions and marketplaces from April 1, the Indonesian Ecommerce Association said in a statement yesterday.

The tax burden will act as an entry barrier to new players and drive merchants to less regulated social media platforms to dodge the levy, it said.

With Indonesia’s Internet economy emerging as the largest and fastest growing in South-East Asia, the finance ministry last week said online retailers will need to collect, deposit and report income tax and value added taxes from April 1.

Owners of e-commerce entities with a certain turnover will also need to start paying income tax, the ministry said, as the government seeks to increase one of the lowest tax-to-GDP ratios in the region.

The majority of Indonesia’s small and medium entrepreneurs use social media for business transactions with only about 19% relying on the formal e-commerce marketplace, the association, formed by companies including PT Tokopedia and Blibli.com, said.

“We know that taxes are indeed encouraged because of the small tax ratio. But don’t look at the benefits in the short term,” Ignatius Untung, e-commerce association chairman, told reporters here yesterday.

“The government needs to see the long term prospects of e-commerce growth. E-commerce in the long run will generate economic growth.”

Indonesia is not alone in moving to tax e-commerce transactions. Singapore, Thailand and Malaysia are among the countries planning to introduce taxes on e-commerce sales.

That would align practices with those in Europe and Australia and put online retailers on a level playing field with their bricks-and-mortar peers. — Bloomberg