Indonesia Must Find Balance Between Taxing E-Commerce and Supporting Startups: Expert

The government must find a balance between its ambition to fill the state coffers and its support for the growing e-commerce industry packed with startups, said Yustinus Prastowo, executive director of the Center for Indonesia Taxation Analysis. (Globe Asia illustration/Gimbar)

By : Tabita Diela | on 7:43 PM October 05, 2017
Category : Business, Tech, Featured

Jakarta. The government must find a balance between its ambition to fill the state coffers and its support for the growing e-commerce industry packed with startups, said Yustinus Prastowo, executive director of the Center for Indonesia Taxation Analysis.

"E-commerce is a growing sector, so the government should be more careful in creating policies so it won't discourage the players," Yustinus said in a note on Thursday (05/10).

The Directorate General of Taxation has for years been mulling a plan to impose value-added tax on each transaction made on e-commerce sites, but the plan only recently started to take shape.

Finance Minister Sri Mulyani Indrawati is preparing a new regulation on an e-commerce tax, which will be lower than the normal 10 percent VAT tariff, Tax Director General Ken Dwijugiasteadi said, as quoted by financial publication Kontan. However, Ken has yet to provide further detail, while a spokesperson for the directorate was not immediately available for comment.

As of September, the government has so far collected Rp 770 trillion ($57 billion) in taxes, or about 60 percent of its Rp 1,283.6 target, as set out in the revised state budget. Imposing a tax on e-commerce might help the government boost revenue collection to meet its target in the remaining three months.

"The government's effort to issue a regulation for e-commerce deserves appreciation," Yustinus said. "The new rule should not be ambitious in pursuing tax potential in the near term, but rather to create certainty and room for sustainable business growth."

Indonesia's potential in the digital economy – or economic value derived from the internet – is vast, according to Communication Minister Rudiantara, who earlier said the country's e-commerce industry alone is expected to rake in $130 billion annually by 2020.

According to Yustinus, imposing VAT on taxable goods and services sold on e-commerce sites is ideal, but the government should also anticipate possible effects, such as people opting to using social media to sell goods and services instead of on e-commerce sites.

Another problem the government faces is in forcing companies to establish a physical presence Indonesia so that they could be obliged by law to comply with local tax regulations. The government has already explored this matter with global technology and social-media giants such as Google, Facebook and Twitter.

"The government can focus on registering [e-commerce players] so they can become taxpayers through their existing representative offices," Yustinus said.

The authority to register e-commerce players falls under the Ministry of Communication and Information Technology, which is beyond the authority of the tax office. Cooperation between the tax office and the Communication Ministry plays an important role, since the ministry could categorize newly registered e-commerce players as taxpayers.

"Forcing companies to establish a permanent presence without changing the Income Tax Law should not be done for the sake of the government's credibility," Yustinus said.

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