Indonesian government will put a 10 percent of value added tax (VAT) on digital products and services sales starting July 1, the tax office announced yesterday (05/27) - Photo by Finance Ministry Office

JAKARTA (TheInsiderStories) – Indonesian government will put a 10 percent of value added tax (VAT) on digital products and services sales starting July 1, the tax office announced yesterday (05/27). The policy is part of the government’ efforts to create justice and level playing field for domestic and foreign companies.

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.

Last April. finance minister, Sri Mulyani Indrawati, said the Southeast Asian largest economy regulates the digital tax for global technology companies lieu of law Number 1 Year 2020 concerning Financial Policy in To Deal with the COVID-19.

“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 (VAT) for global platform services,” she 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 of their ilk.

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