Indonesia to apply VAT on online goods and services

JAKARTA • Indonesia is drafting new rules to impose value added tax (VAT) on online products and services provided by offshore companies, as the authorities target a bigger slice of revenue from the country's fast-growing digital market, a top tax official told Reuters.

Indonesia is the world's fourth-most populous country, with 260 million people, and according to a joint study by Google and Singapore investment firm Temasek, the value of its Internet economy reached US$27 billion (S$37 billion) last year and is poised to grow to US$100 billion by 2025.

Mr John Hutagaol, a tax department official, said that while a global debate continued on how best to tax corporate income in this area, it was generally accepted that VAT, or in some cases sales tax, could be placed on digital goods and services. "It's the low-hanging fruit and can be applied as per every country's rules," said Mr Hutagaol, who heads the international department at the tax office.

However, to charge VAT, Indonesia would need new "implementation rules to decide on the mechanism, because the current rules apply only to conventional transactions, while digital ones are not limited by space and time", he said.

South-east Asia's largest economy currently levies 10 per cent VAT on all goods and services, but any business whose turnover is below a threshold of 4.8 billion rupiah (S$467,400) is exempted.

The new VAT rules would be imposed on e-commerce, content providers, start-ups and other Internet-based economic activities, Mr Hutagaol said, adding that the authorities were looking to learn from the experience of Japan and Australia in applying such digital taxes.

Indonesians are avid users of social media like Facebook , Instagram and Twitter, while the popularity of streaming services like Spotify and Netflix is growing.

 
 

In 2016, Indonesia investigated Alphabet's Google for alleged tax evasion, including missing VAT payments on advertising revenue, but the authorities eventually reached an undisclosed settlement.

REUTERS

A version of this article appeared in the print edition of The Straits Times on July 17, 2019, with the headline 'Indonesia to apply VAT on online goods and services'. Print Edition | Subscribe