Jakarta. The tax office has pledged to investigate tech giant Google for allegedly paying too little in taxes to Indonesian coffers, a senior official said on Thursday (15/09).
Muhammad Haniv, the head of the special cases at the tax office, told reporters the investigation will start soon following Google's refusal to disclose the company's tax reports.
"We know that Google made trillions of rupiah in revenue, but the company paid very little tax," Haniv said. "Their tax payment is based on the fee received by its representative office in Indonesia."
According to Haniv, Google's payment has been "unfairly small" as Google Indonesia — the company's local representative office established in 2011 — only allocates about 4 percent of its total revenue from ads to be taxed by 10 percent income tax.
Google Indonesia claimed that it was complying with the government and it "continues to cooperate fully with local authorities and pay all applicable taxes."
Haniv said other US internet-based companies such as Yahoo, Twitter and Facebook, comply with the government's wish to examine the tax reports of their Indonesian offices.
Billion dollar market
The government is in pressing need to generate more tax revenue in order to pursue its ambitious infrastructure development.
A study from Google and Singapore wealth fund Temasek estimated that Indonesian companies or institutions spend $300 million on digital advertising last year. The market is expected to expand nine times to $2.7 billion in 2025, the study said.
Advertising practitioners said local companies place their ad with Google through locally incorporated advertising agencies. These transactions involve the companies and agencies paying to government 10 percent value-added tax and a 20 percent final income tax imposed on any payment of service provided by foreign entity.
While that means the government did not missing out on tax from the local advertising market, it still cannot tax the income generated by Google.
Yustinus Prastowo of local policy think-tank Center for Indonesia Taxation Analysis (CITA), said the existing regulations are unprepared for a virtual presence.
According to Yustinus, a representative office does not generate income, hence there is no tax to be collected. The government can only collect taxes once a company opens a full branch, but there is no regulation that forces international technology companies to have a full branches in the country.
"Google knows our weakness in the tax system," he said.
Still, he said, an attempt to reach a tax deal with the giant tech company is possible.
"Indonesia must build an argument around the fairness issue because we don't have a regulation that forces these companies to establish a local entity," he told the Jakarta Globe.
Yustinus referred to a similar attempt made by the UK government earlier this year when the giant tech company agreed to pay around $185 million in back taxes to Britain.
"We should know what we're doing and we should do it to all tech companies simultaneously to be fair, especially, during the tax amnesty program as we want to show people that those who made mistakes [in their tax] must correct it," he said.
With additional reporting from Reuters.