Indonesian government plans to impose a 10 percent value added tax (VAT) for digital products and services sold by foreign tech company, said the government official today - Photo by Pixabay

JAKARTA (TheInsiderStories) – Indonesian government plans to impose a 10 percent value added tax (VAT) for digital products and services sold by foreign tech company, said the government official today. The implementation of tax policy will start on July, 1, 2020.

The new regulation stated, the levy will put on the digital products sold by non-resident internet companies, which lack a physical presence in the country but gain revenue from domestic consumers, including streaming services, applications and digital games.

Since last year, the communication and information ministry is amongst those to have previously said that over-the-top services provided by streaming platforms such as United States-based video streamer Netflix, Swedish music-streaming provider, Spotify, Google, Facebook,Twitter, Amazon, and video communication company Zoom, would be among those subject to the new VAT.

“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,” said finance minister, Sri Mulyani Indrawati last year.

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.

Accoding to Mckinsey & Co, Indonesia’ digital economy is expected to grow to about US$150 billion by 2025. Proceeds from the tax will become a critical funding source to support Indonesia’ economy amid the COVID-19 pandemic, said the minister.

Written by Staff Editor, Email: theinsiderstories@gmail.com