IdEA: Tax Regulation Should Not Complicate E-Commerce!

Indonesian economy is having significant development, mainly on electronic-based economy activities. This is in line with the transforming global economy trend from conventional to digital world.

The phenomenon of economic digitalization commonly known as Industrial Revolution 4.0 does not only bring multiple chances, but also several challenges in various fields, including taxation sector, forcing each jurisdiction to put on one’s thinking cap of how to handle erosion in tax revenue as a result of digital economy booming.

Indonesia, with the fourth biggest population in the world—after China, India, and the United States—is one of the biggest digital economy markets. This is reflected in the movement of national e-commerce and fintech industries massively developing in the recent years. However, this trend also makes the government inconsistent in applying tax regulation to digital-based business transactions.

Uncertainty over the tax policy in digital economy sector becomes the main concern of digital business actors, mainly e-commerce industry. MUC Tax Guide lately had a chance to have a discussion in person with the Head of Indonesian E-Commerce Association (IdEA) Ignatius Untung to hear the aspiration of the industry players. The following is the excerpt of our discussion:

How are the condition and development of Indonesian e-commerce industry as seen through IdEA’s lens?

The development of e-commerce industry so far is quite positive. The challenges are still not as much as the chances. So, the growth is still good. While new entrants emerge, the existing ones get even bigger although some companies may have lost due to natural selection, either through merger or acquisition and consolidation. There are some e-commerces closed their operation, but the number is not as many as the ones recently opened for business. 

How many e-commerce actors that become IdEA members now?

The total members are 146 e-commerce actors. 

Are there any specific criteria to join IdEA?

The criteria are simple. First, a Permanent Establishment (PE) in Indonesia. Second, a company related to e-commerce, better if it is an e-commerce company. So, supporting e-commerce business can also join us, not only for those performing sales electronically.

The government had issued a tax regulation specific for e-commerce (Minister of Finance Regulation (PMK) No. 210/PMK.010/2018), even though it was revoked. How does IdEA see that?

We actually have no problem with the core of the PMK, except for the part of playing field level. As long as the regulation is applied at once for all business models, including social media, it shouldn’t be an issue. Our big question is about whether the policy will be applied for social media. If no, it won’t work. The sellers will all move to the social media instead.

Second, we need to highlight the government’s poor communication. It means, when they are about to issue such regulations, instead of issuing it right away and make a fuss, it is better to invite the stakeholders, tell (them) about the purposes and objectives of the regulation to ask for our opinion. So, any objection can be discussed immediately.

So, there was no discussion before the regulation was issued? 

There was a meeting once, and they promised us for another. But, it (the regulation) was issued right away.

After the regulation was issued, is there any discussion with the government? What kind of solution that will be conducted?

Currently, we agree that our perspective must be the same, that we have a problem. DGT (Directorate General of Taxes) wanted to enhance tax database, on the other hand, we don’t want to be taken advantage of nor treated as the same. It is in the context that there are sellers who have not made their living from selling, but still in trial stage instead. If those in trial period and not yet entirely depending on the sales activity are imposed with the obligation to submit Tax ID Number (NPWP), or “intimidated” with it, they will run away. On the contrary, those depending (on online sales for living) have no choice, if they are requested to submit NPWP, they have to. Those two are important.

How to choose those obliged (to own) NPWP and those who are not?

There were various versions of the proposals. However, the one standing out is that in the category of microbusiness, the business with revenue of IDR300 million in a year does not need an NPWP. Higher level businesses (medium to upper) are obliged to submit NPWP.

Will IdEA assist in the provision of gross income data? 

Yes, we will. Those (the data supply) are from the player, actually.

How big exactly the number of e-commerce sellers that are only ‘trying’? 

Based on our data, 80% of total e-commerce actors are micro players, very dominant. Thus, if the regulation is applied, it will not be imposed on many.

What do you think about e-commerce being a government’s agent to collect tax?

We object to that. Thus, we should talk about the tax compliance first. For example, when we are instructed to accept NPWP data, can we verify the validity of the NPWP? If we can’t, it is pointless. People may carelessly fill the NPWP. Meanwhile, many people are already scared. This has been complicated. 

So far, can e-commerce as a platform systematically be used as tax collector?

It’s possible, but under the conditions as mentioned before. First, the level of playing field is carried out. Second, the ‘on-trial-stage’ business group should not be obliged to do so.

Aside from tax regulations, what kind of regulation the e-commerce players need the most?

The regulation we need, for example, is related to business competition. So, how to keep the players from the price war or fierce price cutting by giving constant subsidy. If the condition persists, (they) will be black and blue, and the market will not sustain.

Is that the current condition?

It is. Because we are still on acquisition process.

How IdEA sees the Road Map of E-commerce made by the Indonesian Government?

It is hard to comment on the Road Map of e-commerce because, since I took the office, I have never received the draft. So, I don’t know what to comment. IdEA was invited to discuss about the Draft of Government Regulation on Road Map of e-commerce in 2013, before I officiated. After that, there was nothing. Suddenly, the Government Regulation has been issued. We don’t know whether it has been in accordance with the last discussion. 

Recently, Research & Development (R&D) in digital sector has been the talk of the town, what do you think of the government support related to R&D?

Regarding R&D in digital industry, the problem is not related to R&D entering private sectors, but the government budget entering universities. We can never say that it (the government support for R&D) is enough. However, if we take a look at the latest data, our gap with Singapore is not that far. Therefore, it (the government support) must not be that bad—although we can’t say that it’s good. Secondly, there are a lot of private R&Ds cooperating with universities to build laboratories. So, it is better to collaborate.

How big is the population of e-commerce actors in Indonesia based on IdEA’s latest data (2018)?

The calculation of e-commerce population (2018) was around 31 million. Where did we get the data? Well, from various sources, secondary data.

Does IdEA have any target related to the e-commerce industry development?

We will go with the flow for now as it is hard to make a target, we should know the direction of the policy. When we don’t know the policy yet, we surely can’t make a target.

In 2019, what is the hardest challenge faced by the industry?

The hardest challenge may be the political tension, when a lot of people want to be elected as legislative members or president, or those would not stop giving their opinion so they will be requested to be a Minister, started highlighting about small issues and added more fuel to the flame. Instead of doing so, it’s better for them to be the official first then talk about what should the policy be.