Effective July 1 Indonesia will implement a 10 percent VAT on the sale of digital products or services by nonresident companies to raise revenues as it deals with the COVID-19 pandemic.
According to the Indonesian Finance Ministry’s Ministerial Regulation No. 48/2020, released May 15, VAT will be collected by digital services providers in Indonesia that are appointed by the ministry’s Directorate General of Taxes.
The regulation says VAT assessments will be made based on transaction value or amount of internet traffic. VAT will be levied on literature, recordings, art or scientific work, motion picture films, and intellectual property rights, the regulation says. Netflix, Spotify, and Amazon did not provide Tax Notes with comments before press time.
According to The Jakarta Post, the Directorate General of Taxes said in a May 15 statement that the tax "is one of the government’s efforts to create a level playing field for all business players, especially between domestic and foreign players as well as conventional and digital businesses.”
The VAT regulation follows the House of Representatives' May 12 approval of a government regulation that aims to mitigate the economic effects of COVID-19, according to a May 13 release from the cabinet secretariat. In addition to providing tax incentives to aid Indonesian businesses, the May 12 regulation provides that Indonesia may tax nonresident companies that provide intangible goods or taxable services and have a significant economic presence in the country. The government had announced plans to subject digital companies to VAT in 2019.
The size of Indonesia’s internet economy has more than quadrupled in size since 2015, with an average annual growth rate of 49 percent, according to a research report by Google, Temasek, Bain & Company. "As the largest and fastest growing Internet economy in the region, Indonesia is well on track to cross the $130 billion mark by 2025," the report says.
Minister of Finance Sri Mulyani Indrawati said May 18 that the government’s economic recovery program has provided nearly IDR 123 trillion (approximately $8.29 billion) in tax incentives to businesses.