Indonesia's taxman going after Google and other tech giants

A security guard keeps watch as he walks past a logo of Google.
A security guard keeps watch as he walks past a logo of Google.PHOTO: REUTERS

Indonesia's tax authorities have asked Google to provide data on its advertising revenue as they ramp up efforts to collect millions of dollars in back taxes that the Internet giant allegedly did not pay.

Tax investigators made an official request when they visited Google's office in Jakarta on Monday after its Asia-Pacific headquarters in Singapore refused to be audited in June, Jakarta Special Tax Office chief Muhammad Haniv told The Straits Times yesterday.

Google Indonesia is suspected of failing to pay taxes over the last five years. While Mr Haniv did not specify the total outstanding sum, the company could be liable to pay 5.5 trillion rupiah (S$569 million) in taxes and fines for last year alone.

Google Indonesia allegedly paid less than 0.1 per cent of the total income and value-added taxes owed last year, and most of the revenue generated in the country is booked at its Singapore headquarters, Reuters news agency reported.

Mr Haniv said tax investigators asked for advertising revenue information and also to meet directors from the United States and Singapore who are "related to technical, financial, and data management".

"We want to obtain records of electronic traffic data which show how many Internet users in Indonesia have downloaded advertisements from Google. The number of download clicks will give us an idea of Google's revenue and profit," he said. "For instance, a customer in Indonesia clicks on a hotel advertisement on Google, and proceeds to book rooms for several days. That's profit for Google from Indonesia as the income source," he explained.

The company could face criminal charges for audit refusal and risks getting blocked, Mr Haniv warned.

The Indonesian government has been stepping up efforts to collect taxes to narrow its Budget deficit but is struggling to audit companies that deliver content through the Internet, such as Google, and collect taxes from them.

Mr Haniv said these companies often claim they have no "permanent establishment" - that is, a physical presence such as an office or assets such as land or equipment.

"They think they can win with this approach. But digital companies need permits to run their services and have a local administrator, that's considered a permanent establishment too," he said.

Besides Google, the government has also been putting pressure on tech giants such as Facebook, Yahoo and Twitter to comply with tax regulations, Mr Haniv said.

"But we are prioritising Google because it's the biggest player," he said, adding the company claims over half of the total annual US$830 million (S$1.13 billion) Internet advertising revenue in Indonesia.

"If companies get a huge revenue from a country, and yet evade taxes, that's abuse," he said.

In an e-mail reply, a Google Asia-Pacific spokesman said: "Goo- gle Indonesia has been incorporated as a local company in Indonesia since 2011. We have been and will continue to cooperate with the government and have paid all applicable taxes in Indonesia."

IT analyst Donny Utoyo from Information and Communication Technology Watch said Google is facing pressure over tax payments not only in Indonesia, but also in the UK, Australia and India.

"It's going to be a long process. But Indonesia is a huge market with 100 million online users. Google does not wish to lose this market so it will try to negotiate with the government."

A version of this article appeared in the print edition of The Straits Times on September 22, 2016, with the headline 'Indonesia's taxman going after Google and other tech giants'. Print Edition | Subscribe