JAKARTA (TheInsiderStories) - The directorate general of taxes at the ministry of finance to implement the 10 percent of value added tax (VAT) mechanism in every item in 10 digital firms like Tokopedia, Bukalapak, and Lazada, a new regulation showed last week. The new policy will effective starting Dec. 1, 2020.
The VAT collection is only carried out on the sale of digital goods and services by foreign sellers who sell through the marketplaces. This rule was passed through Law Number 2 of 2020 which implements Government Regulation in Lieu of Law Number 1 of 2020 regarding government economic and financial policies in the context of tackling the COVID-19 pandemic.
Apart of them, seven other digital companies are Zalora, Blibli.com, Valve Corp., (Steam), beIN Sports Asia Pte. Ltd., Cleverbridge AG Corporation, Hewlett-Packard Enterprise USA, and Softlayer Dutch Holdings BV (IBM). In October, the ministry has put VAT to eight tech companies after 28 foreign digital firms.
The companies are Alibaba Cloud (Singapore) Pte. Ltd., GitHub Inc., Microsoft Corp., Microsoft Regional Sales Pte. Ltd., UCWeb Singapore Pte. Ltd., To The New Pte. Ltd., Coda Payments Pte. Ltd., and Nexmo Inc. The director general, Suryo Utomo, said they must pay the tax from their digital products and services sold in Indonesia starting Nov. 1, 2020.
Based on the regulation, digital products such as music and film streaming services, digital applications and games, and other online services from abroad that have a significant economic presence and have taken economic benefits from Indonesia through their trade transactions, will be treated the same such as conventional products or similar digital products in the country.
“I know that in this situation streaming is widely used and we see a lot of tax transactions in digital, so we need rules to be able to collect income tax for global platform services,” finance minister, Sri Mulyani Indrawati told media on April 1.
The rules are contained in article 6 of the new bill, which states the government will collect taxes from trading activities through the electronic system by foreign companies who meet the provisions of significant economic presence.
“Overseas traders, overseas service providers, or overseas providers who meet the provisions of significant economic presence can be treated as permanent business entities and subject to income tax,” said the article.
Then, “The rates, basis for imposition and procedures for calculating income tax and electronic transaction tax will be regulated by or based on government regulations.”
Since last year, the government aimed to collect VAT from foreign digital companies such as Google, Facebook, Amazon, Twitter, and Netflix, which lack a physical presence in the country but gain revenue from domestic consumers.
“In the new law, with the phenomenon known as a cross-border digital economy, the definition of a permanent establishment would no longer be based on physical presence. So, even if the companies do not open any offices in Indonesia, they still have a tax obligation because they have what is called a significant economic presence,” Indrawati told reporters Nov. 22, 2019.
Moreover, the digital-based companies would be declared a foreign tax subject, which will mandate them to collect value-added tax from economic activities conducted in Indonesia and deposit taxes with the tax authority.
The country’ current tax code, last revised in 2000, has a loophole that has meant only companies domiciled in Indonesia have to pay taxes. This lets over-the-top media services to stream their movies to local customers without collecting value-added taxes like their local counterparts.
With the revised tax code, Indonesia is following in the footsteps of Singapore and Australia, countries that have implemented the so-called Netflix law. Governments around the world are banding together to try to find a way to collect tax from over-the-top media streaming services and other companies.
Written by Editorial Staff, Email: [email protected]
