Indonesia’s gambling with a tax on e-commerce. Will it pay off?
- In April, authorities in Southeast Asia’s biggest economy are set to tax businesses in its digital sector, which is predicted to be worth US$46 billion in 2025
- But there has been fierce opposition from these firms, who are asking for more time – and presidential challenger Prabowo Subianto is taking their side
Indonesia’s small- and medium-sized enterprises (SME) and e-commerce platforms are up in arms over a plan to levy taxes on online businesses, as authorities in Southeast Asia’s biggest economy grapple with tax collection from its burgeoning digital sector.
The Indonesian tax authority is set to introduce the e-commerce tax scheme next month, getting the ball rolling by tabulating taxpayer identification numbers from SMEs that sell products and services on online marketplaces. The task of logging these ID numbers will be assumed by e-commerce platforms operating in the country, which include a pair of Alibaba-backed firms, Bukalapak and Tokopedia. Alibaba owns the South China Morning Post.
If elected, I will cut regulation [in the digital sector]
According to a December 31 regulation from the finance ministry, sellers in online marketplaces are subject to a 10 per cent value added tax (VAT) as well as a sales tax on luxury goods that can go up to 200 per cent for certain items.
While the details have yet to be formalised, pending feedback from all stakeholders, the tax authority also said SMEs with annual online sales of less than 4.8 billion rupiah (US$336,000) are subject to 0.5 per cent income tax, similar to their bricks-and-mortar counterparts. Only sellers on online marketplaces will be taxed, not those selling via classified advertisements and social media such as Instagram and Facebook.
As with many issues in an election year, discussions of this subject have boiled over into politics. In the country’s second presidential debate last month, challenger Prabowo Subianto claimed many SMEs had complained about the e-commerce tax plan.
“[SMEs] told me that they’re facing difficulties to grow their businesses because of red tape. I heard that they will be taxed too, this is what they complained to me about,” the former general said. “If elected, I will cut regulation [in the digital sector] and I will support any efforts to develop small and medium online businesses.”
