Starting July, big internet companies will need to pay value-added tax on sales of digital products and services in Indonesia. Analysts say that this move could be followed up by other countries as countries try to find out ways and means to increase state revenues to counter the hit to their economies from coronavirus pandemic.
Digital products that are sold by non-resident internet companies and those that have a significant presence in the Indonesian market will have to be pay 10 per cent VAT as imposed by the largest economy of Southeast Asia. According to a regulation published on the country’s finance ministry’s website, companies offering streaming services, applications and digital games will be included in the list and have to pay VAT starting July 1.
Services provided by streaming platforms such as Spotify and Netflix would be among those subject to the new tax, Indonesian authorities have previously said.
There were no comments available from any of the companies likely to come under the new tax regimen.
Moves by various governments around the world to tax internet giants have been propelled by the economic impact of the novel coronavirus pandemic, said analysts. That could boost income of countries because people are forced to stay home because of the lockdown and social distancing provisions imposed because of the efforts to try and control the spread of the pandemic.
“In the absence of a global compact on digital taxation, unilateral moves will flourish,” said Chatham House Asia Fellow Vasuki Shastry. “The fiscal hole due to Covid-19 makes it unstoppable.”
The first major rewiring of tax rules, that would by applicable worldwide, aimed at taking better account of the rise of big tech companies such as Amazon, Facebook, Apple and Googlem is being conducted by a consortium of at least 140 countries from the Organisation for Economic Cooperation and Development (OECD). It has been alleged that these large tech companies manage to evade taxes or pays very little tax by booking their profits in low tax countries.
The economic impact of the coronavirus pandemic is expected to prompt many countries to look for more avenues for revenue generation to counter and cushion the expected recession for the current year. The Indonesian government has been trying to force internet companies to [pay up their due share of taxes for a number of years now and the latest move to impose VAT was first announced by the country in March this year under the emergency measures outlined by President Joko Widodo in order to help generate more funds to tackle the impact of the novel coronavirus crisis.
The package was passed by parliament on Tuesday.
According to a study by Google, Temasek Holdings and Bain & Company, the digital industry of Indonesia, which has a population of nearly 270 million, is currently booming and is expected to reach a volume of $130 billion by 2025.
The aim of the government to impose VAT on internet goods was to ensure that the Indonesian government is able to capture a shift in the consumption patterns of consumers as they are forced to stay back home during lockdowns and strict social distancing measures to prevent the spread of the pandemic, said Indonesian Finance Minister Sri Mulyani Indrawati.
(Adapted from FinancialPost.com)