Indonesia Cracks Down On Digital Transactions By Issuing Rules Governing Taxation of E-Commerce

; posted on
January 18th, 2019

The Indonesias government has issued regulations requiring small to medium-size online businesses to pay tax at a rate of 0.5 npercent of sales, while larger e-commerce companies need to pay a higher corporate income tax rate of 25 percent.

The Details

The rules, 210/PMK.010/2018, would apply to all online marketplace operators in Southeast Asia’s largest economy, including Lazada and Tokopedia, which are both backed by Chinese e-commerce giant Alibaba (BABA.N), and Bukalapak, which counts China’s Ant Financial among its investors.

The online seller that makes at least 4.8 billion rupiahs ($339,943) in turnover must remit value added tax to customers and pay this to the authorities. A seller must also pay income tax of 0.5 percent of turnover if it is a small or medium-sized business, or a 25 percent corporate tax of profit if it is big enterprise, bringing the sector into line with requirements for conventional retailers.

The rules were put in place to clarify what taxes each player in a marketplace is obliged to pay and to create an equal treatment with conventional businesses.

Date Of Entry Into Force

The regulation will go into effect April 1. Once it enters into force, online marketplaces must report details of sales made by vendors on their platforms. Businesses selling goods or services are required to provide the online marketplaces with their tax ID numbers. The marketplaces are then required to collect and remit VAT and income tax to the government.

Ecommerce Tax In South East Asia

Similar to Indonesia, many countries in South East Asia have been making progressive movement in taxing digital transactions. Their initiatives tabulated as followed:

Countries

Type of tax

Standard rate

The scope of regulation

Philippines

VAT

12%

The 12% VAT apply to online seller with total value of online transactions of more than USD$37,310 came into effect in 2016. For transactions lower than the threshold, a 3% VAT is levied instead on online transactions.

Singapore

GST

7%

Apply to cross-border B2C – and business-to-business (B2B) – digital service supplies.

Vietnam

VAT

10%

Apply to foreign ecommerce firms that have local representative office registered in Vietnam. Individual residents without an established ecommerce company in Vietnam will be subject to tax if they have annual sales revenue over USD$4,300

Malaysia

SST  (Sales and Service Tax)

6% on services and 5-10% on goods

Apply to foreign service providers making supplies to Malaysian consumers (B2C), including, but not limited to, downloaded software, music, video or digital advertising

Thailand

VAT

7%

Apply to foreign ecommerce platforms deriving annual service income exceeding THB1.8 million (US$56,000), including Google, Amazon, and Alibaba


Apart from their attempts to tax digital transaction, the governments are having difficulties to overcome the pressure from big corporates, complaints from Small Enterprises, and enforcing the regulation. However, amidst the difficulties, the existing regulation is expected to bring tax fairness between conventional and digital transaction.

Sources: Ministry of Finance Indonesia, Press Release, Reuters, EcommerceIQ

Our Solutions - Let's Talk Business!

TPA Global provides solutions in the area of BEPS, Value Chain Analysis for multinationals along with variety of tax, business and educational technologies. Let us show you how to improve your operations and move from “staying out of trouble” to “being in control”.

TPA Global Solutions    Tax & TP Technology

Copyright © 2019
Transfer Pricing Associates BV.
All rights reserved.
 

H.J.E. Wenckebachweg 210
1096 AS Amsterdam
T: +31 20 462 3530
E: info@tpa-global.com
I: www.tpa-global.com