Indonesia says Internet giants need to pay tax or face blockages

Internet-based firms could have their services blocked in Indonesia if they do not pay Indonesian tax.
Internet-based firms could have their services blocked in Indonesia if they do not pay Indonesian tax. PHOTO: EPA

JAKARTA (Reuters) - Global Internet-based firms could have their services blocked in Indonesia if they do not obtain "permanent establishment" status in the country and pay Indonesian tax, government officials said on Monday (Feb 29).

Finance Minister Bambang Brodjonegoro told reporters all Internet-based services must have a local presence in the form of a representative office or a full-fledged company.

"All have to create a permanent establishment, like the contractors for the oil sector, so they can be taxed," he said.

The minister did not name specific Internet firms that would be impacted.

Separately, Communications Ministry spokesman Ismail Cawidu told Reuters his ministry aims to issue a regulation in March containing rules to apply to streaming and messaging providers as well as social media websites.

Indonesians are huge users of Google and social media sites. The country is considered Twitter's capital and is home to the world's fourth-largest number of Facebook users.

Cawidu cited national interests on taxes and controlling content related to terrorism and pornography as the main reasons for the regulation.

If they do not comply, Indonesia will reduce their bandwidth or block them entirely, Cawidu said, adding that there might be a transition period under the new rules. "They have massive customers in Indonesia... If someone places an add in Google, what do you think we get?" he said.

The Communication Ministry estimated digital advertising from Indonesia was worth about US$800 million (S$1.12 billion) last year but the business was left untaxed because of loopholes in regulations.

Some of the internet giants have already formed legal entities in Jakarta, including Google, while Facebook and Twitter have representative offices.

Communication Minister Rudiantara told Metro TV on Sunday even those already here may face greater scrutiny of their tax reports.

"Google has an office in Indonesia, but digital age transactions do not go through that office. That is what we're looking to straighten out," Rudiantara said, giving an example.

Efforts to get immediate comment from Google, Facebook and Twitter were unsuccessful.