August 13, 2020

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Indonesia to levy 10 percent tax on foreign digital services

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Indonesia will levy a 10% value-added tax on the digital offerings of foreign companies from July 1. The country plans to impose the value added tax on digital products sold by non-resident internet companies with significant presence in the Indonesian market.

Indonesia has sought to get internet companies to contribute their fair share of taxes for years. The decision to impose VAT was announced in March when President Joko Widodo outlined emergency measures to help the country weather the coronavirus crisis.

The nation brought into effect its digital services tax in April 2020 and, in a regulation issued last week, revealed its plan to levy a value-added tax on software, multimedia and data.

The new tax has been linked to post-pandemic budgetary stress, and is clearly a move to mitigate the economic impact of the COVID-19 pandemic.

During the pandemic, there has been significant spikes in local usage rates of entertainment and music streaming services as well as video conferencing platforms.

Products and services including AV chatting, video games, music and movie streaming could fall under the purview of the levy.

Digital services providers will be required to collect the tax and, if they operate outside Indonesia, the collected levy has to be remitted from abroad.

Tax slabs will be determined based on subscribers and revenues. Exemptions have been made for research data.

“The tax for foreign digital products is a part of the government’s effort to create a level playing field for all businesses,” the tax directorate said in a statement.

The move was also aimed at boosting public revenue to help mitigate the impact of COVID-19 on Southeast Asia’s biggest economy, it added.

Indonesia’s fast-growing Internet economy was valued at $40 billion in 2019 – a figure estimated to more than triple by 2025 – according to a study by Google and Singapore sovereign investment fund Temasek.

Tech companies often pay little tax in countries where they are not physically present.

International efforts have been going on for a while to find sustainable and equitable models to tax revenues generated from online sales of products, services and advertising.

There are concerns that such taxes single out tech giants predominantly based in the US.

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