The Communication and Information Technology Ministry said earlier that $800 million digita ad spending remain untaxed last year because of the loopholes in regulations. (JG Photo/Dion Bisara)

Line, BBM on Board for In-Country Office Plans Touted by ICT Ministry


MARCH 12, 2016

Jakarta. Plans by Line and Blackberry Messenger, two of the world's most popular messaging apps, to open permanent in-country offices have been hailed as a vote of confidence for the government's long-touted policy plans to protect consumer rights and increase tax revenue from the fast growing digital economy.

"They both want to comply with this [regulation]. Indonesia should not only be seen as a market, but there should also be a benefit for us," ICT Minister Rudiantara told reporters on Friday (11/03).

The minister previously said the government would force over the top (OTT) applications to open a permanent office  locally to ensure better customer service and improve consumer protection. In addition, the company's presence in Indonesia will also force them to pay taxes and comply to local regulations.

OTT applications are any application or service that provides media and communication over the Internet. Other examples include Netflix for streaming, or Skype which replaces long distance call providers.

These apps can form a permanent establishment as a privately owned company in the form of Firma, Commanditaire Vennotschap (CV) or limited company (PT). It can also form a cooperation with local cellular providers as long as they pay tax on any income made in Indonesia, the minister said.

Line, a messaging application from South Korea, monetizes its service through stickers and other in-app features sales. Blackberry also offers paid stickers for its users and sell adds on its platform.

"I've been saying it since last month ... We insist that they must form a permanent establishment in Indonesia," Rudiantara said.

The Communication and Information Technology Ministry said earlier that $800 million digital ad spending remained untaxed last year because of the loophole.

No blockage

Rudiantara said the government wants to avoid the extreme measures taken by countries like France, which suspended Google's advertising service in 2013 in an effort to seek 1.6 billion euros ($1.77 billion) in back taxes from the internet giant.

"The ICT Ministry  is not going to block [services]. However, they need to pay taxes. They have to pay for income tax and they have to be audited. There's a penalty of they chose not to comply," Rudiantara said.

Last month, the ministry announced plans to block blogging platform Tumblr, due to pornographic content, but was met with severe backlash from the public forcing the ministry to dump the policy only hours later.

Still,  it remains unclear how the government will force companies to open in-country offices.

According to Lis Sutjiati, an adviser to the communications minister, the government is still brewing its scheme to be announced at the end of the month.

Lis also said the government would give a "transition time" for the OTT applications after the government release the new regulation.

The government's decision received praise from Indonesia's Consumer Protection Foundation, better known as YLKI.

"That's good. That's how it should be done. How come they are making money in Indonesia without having any office. China has done it for a long time. If they don't want it, they should terminate [their services] because Indonesia is a very profitable market," Tulus Abadi, YLKI chairman, told Jakarta Globe.