Indonesia drafting plan to tax sales by non-resident digital companies

Indonesia continues to work on drafting plans - revealed in July 2019 - to extend the scope of its VAT law to digital sales from non-resident companies.

Nov 14, 2019

Indonesia continues to work on drafting new plans to extend the scope of its VAT law to digital sales from non-resident companies.

Affected businesses are still waiting for the draft of a proposed policy revealed in July 2019 to tax non-resident businesses with digital sales in Indonesia. Indonesia’s standard VAT rate is currently 10%.

The potential VAT rule change in Indonesia again shows the level of movement in South-East Asia when it comes to the taxation of digital sales by non-resident companies.

In January 2020 new rules in Singapore and Malaysia are due to come into effect while other tax jurisdictions such as Thailand, Vietnam, and the Philippines are also exploring approaches to similar rules taxing the digital economy. Vietnam has proposed to change its VAT rules from July 1, 2020. You can discover more about what is happening in South East Asia here.

‘Fair taxes in the digital economy’

Back in September 2019 Indonesia’s Finance Minister Sri Mulyani Indrawati was quoted in this Reuters article that Indonesia was preparing a bill to make tech firms pay VAT in Indonesia.

The quotes in this article were not Sri Mulyani ’s first comments on the topic. At a March 2018 G-20 gathering in Buenos Aires, Argentina, she urged international cooperation in attempts to tax digital giants such as Google, Facebook, Twitter, Amazon, Uber, Lazada and Grab.

She also raised the issue of unfair competition between digital companies, particularly in e-commerce, and conventional ones, particularly in terms of tax treatment.

“All finance ministers face similar technical issues on how to collect {…} fair taxes in the digital economy,” she said.

Then, in April 2018 a month after the Finance Minister’s comments at the G-20, Indonesia’s Minister of Trade Enggartiasto Lukita - speaking at the 32nd ASEAN Summit in Singapore - proposed a tax on goods and services offered through electronic commerce. According to Antara News, the goods and services mentioned will include (among others) “e-books, digital music, accounting services, and architecture services.”

As usual, we will keep you up-to-date on developments in Indonesia.

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