The tax office had been floating the idea over the past few years to get e-commerce sellers, mostly micro, small or medium enterprises, to start paying their fair share of taxes but later realized that most retail sellers on Tokopedia, Bukalapak, Shopee and Blibli have annual sales below Rp 500 million ($35,000) per year. (Antara Photo/Aprillio Akbar)

The Taxman Is Playing the Long Game in Indonesia's E-Commerce Industry

BY : DION BISARA

AUGUST 20, 2019

Jakarta. The tax office has backed away from plans to recover taxes from retail sellers on Indonesia's e-commerce platforms – for now – opting instead to groom the ecosystem and provide enough room for the industry to grow.

"We don't want to spook the sellers. This e-commerce environment is still growing and it is attracting investment," Robert Pakpahan, director general of taxes at the Ministry of Finance, told the Jakarta Globe on Monday. 

"It's just how to impose the regulations without creating turbulence... We are quite sensible," he said. 

The tax office had been floating the idea over the past few years to get e-commerce sellers, mostly micro, small or medium enterprises, to start paying their fair share of taxes.

The potential is enormous. Tokopedia, one of Indonesia's largest e-commerce platforms, which recently celebrated its 10th anniversary, boasts 6.2 million sellers on its platform, 70 percent of whom are first-time entrepreneurs, according to a company statement. A recent study by Google and Temasek estimated that Indonesia's e-commerce market was worth $12 billion last year and projected that it may grow to $50 billion by 2025.

The tax office's idea at the time was that online platforms presented an opportunity to tax entrepreneurs and transactions that were outside the tax system. For example, an online platform could easily add programming code to automatically collect value-added tax on each transaction. 

There was also pressure from offline-based entrepreneurs who asked the tax office to level the playing field with their online-based counterparts.

But the tax office later realized that retail sellers on Tokopedia, Bukalapak, Shopee and Blibli mostly have annual sales below Rp 500 million ($35,000) per year. And while still liable for income tax, they are well below the threshold for the mandatory collection of VAT, Robert said.

And the notion of the tax office gunning for their incomes would scare them away from the platform. "They will move to social media sites, such as Instagram, where it would be harder for us to monitor them," Robert said.

Thus, for now, the tax office believes it would be best to approach sellers with the proverbial carrot, rather than the stick. 

"E-commerce sellers must be approached slowly ... that they need to self-asses their tax liabilities," he said.

"Being an online seller does not mean the business is excluded from paying tax. All businesses that have gross sales above Rp 4.8 billion per year and sell taxable goods, must collect value-added tax. SMEs pay a final tax of 0.5 percent on their gross sales," he added.

Robert believes the industry would be mature enough within the next few years and that entrepreneurs would come to realize that its more beneficial for them to meet their tax obligations. 

Also, thanks to the automatic information exchange with banks and digital records kept by e-commerce platforms, the tax office would have enough data to accurately assess taxpayers' incomes. 

"The most important thing from this, is that we will have digital records. Ten years ago, such records were either non-existent, or if they existed, would have been impossible to examine individually," Robert said.

"They will not be able to run away," he added.

Robert said the tax office did not encounter any irregularities by e-commerce companies when it comes the payment of taxes. The companies deduct and pay over their employees' taxes regularly, but have yet to pay corporate taxes, as they are still in the red.

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