Facebook the new tax target for Indonesia

Facebook logos are pictured on the screens of a smartphone and a laptop computer.
Facebook logos are pictured on the screens of a smartphone and a laptop computer. PHOTO: AFP

Move follows reports of Google nearing settlement with Jakarta

The taxman in Indonesia is now after Facebook to cough up what is estimated to be millions of dollars in back taxes, following news that Google could reach a settlement with the Indonesian tax authorities soon.

Jakarta Special Tax Office chief Muhammad Haniv said the social media giant could owe up to 3 trillion rupiah (S$310 million) in unpaid taxes and penalties, mainly from revenue it generates in the country.

He also said that Facebook has been notified to attend a meeting with tax officials in Jakarta to clarify its business interests in Indonesia. Facebook did not respond to queries from The Straits Times by press time yesterday.

This development comes a day after a Reuters report, which quoted an unnamed source, said that Google will pay back taxes and fines under a proposed deal and agree to a new calculation of profits made in Indonesia.

In September, Mr Haniv said Indonesia wanted Google to account for five years of back taxes. He added that if found guilty of tax violations, Google may have to pay fines of up to four times the amount owed, bringing the maximum tax bill to 5.5 trillion rupiah just for last year.

Google has said that its unit - incorporated as a local firm in Indonesia since 2011 - has been cooperating with the government and that it has paid "all applicable taxes in Indonesia".

Google has an estimated 100 million users in Indonesia, while Facebook users in the country are expected to reach 96 million in 2018, up from 77.6 million in 2014, said Internet statistics firm Statista. The moves against Facebook and Google are part of a wider initiative by Indonesia to plug its national budget deficit and to reform its tax regime in order to raise revenue in the long term.

The government has also been pressuring other tech players such as Yahoo and Twitter to comply with tax regulations.

Mr Haniv told The Straits Times previously that the tax office was prioritising Google "because it's the biggest player", adding that the firm claims over half the total annual Internet advertising revenue in Indonesia, which amounts to US$830 million (S$1.1 billion).

However, a joint study by Google and Singapore's Temasek Holdings, released earlier this year, estimated the size of Indonesia's digital advertising market last year at just US$300 million.

Google has an estimated 100 million users in Indonesia, while Facebook users in the country are expected to reach 96 million in 2018, up from 77.6 million in 2014, said Internet statistics firm Statista.

The moves against Facebook and Google are part of a wider initiative by Indonesia to plug its national budget deficit and to reform its tax regime in order to raise revenue in the long term.

A key plank of the plan is a tax amnesty scheme, introduced in July this year, to recover billions of dollars in revenue lost to widespread tax evasion and in assets hidden overseas by wealthy citizens and businesses.

As of yesterday, Indonesians have declared 3,944 trillion rupiah worth of assets under the scheme, but only 143 trillion rupiah has been repatriated.

A version of this article appeared in the print edition of The Straits Times on November 25, 2016, with the headline 'Facebook the new tax target for Indonesia'. Print Edition | Subscribe