“Cogito ergo sum. I think, therefore I am.” That classical philosophy is resulted from a self-debate of Rene Descartes, a French philosopher and mathematician, as he hesitated all matters and looked for absolute certainty in 15th century. ‘Mind’, for Descartes, is a certain matter as the manifestation of human self-existence.
However, the development of human lifestyle seems to disprove Descartes’ proverb. Shopping, for instance. For some people, particularly upper middle class, shopping is considered as a form of real self-existence in modern communication. Not only for fulfilling the needs of clothing, eating, and housing, shopping now becomes one of social interaction symbols.
Shopping also becomes an economic cycle considered as a form of people’s welfare. As the representation of a state, a government uses tax to gain the economic benefit of people’s interaction pattern in trading.
In line with technology development, the change of interaction pattern in market has caused problems. One of which is an online shopping trend that creates a new style of trading in digital era. Sellers and buyers only need to touch buttons on their phone screen or merely move their mouse and type on their keyboard, as well as connect to banking wireless service network, to transfer goods and money in an instant. It is called as ‘e-commerce’, which makes buy-and-sell transactions easier and more efficient since face-to-face meeting is no longer required for the buyers and the sellers.
E-commerce market potential is enormous. Indonesia is even called as the largest e-commerce market in ASEAN region. It is supported by its demographic benefit (its huge number of population) in addition to its high consumptive behaviour. Hence, it is not surprising when household or private consumption always becomes the major sources of national Gross Domestic Product (GDP).
The Ministry of Finance mentioned that transaction value of e-commerce in Indonesia in 2014 has reached the range of USD1.1 billion. Its growth is quite significant from year to year, following the rapid growth of internet usage trend.
Based on survey of Indonesian Internet Service Users Association (Asosiasi Pengguna Jasa Internet Indonesia/APJII) in 2016, the number of internet users in Indonesia amounted to 132.7 million people or 51.8% from the total population of 256.2 million people. The interesting fact is that around 62% of the users (82.2 million people) are browsing just for online shopping.
This digital phenomenon does not only make Indonesia an interesting online market for investors, both local and global, but also a new target for the Tax Authority to boost the state revenue. Furthermore, the emergence of digital start-ups and the presence of several global giant digital players, such as eBay, Alibaba, and Jingdong has turned Indonesia to be an online shopping paradise amid taxation system that is still left behind by the digital development.
So far, there are four types of e-commerce transactions recognized by the government. First, the activity of providing business place like internet mall, which provides place for online marketplace merchant to conduct its sales. Second, list of classified ad business models. Third, product promo or discount offering services in specific period of time (daily deals). Fourth, online retail.
However, Indonesian Tax Authority shall not be lulled by the great potential of e-commerce market in Indonesia if they have not supported by tools to dig it up. Instead of economic and tax potential, we consider this phenomenon as a big challenge for the Tax Authority to be able to tax it.
Moreover, there is barely any border or barrier in trading transaction in digital era. The buyers and the sellers can be in Indonesia, but the counter party is in any country in which physical presence is hard to detect. Meanwhile, money and goods or services can be transferred in a blink of an eye passing country border without being tracked by current conventional tax system.
Indonesian government has long noticed this potential and challenge. Within short time, related Authority will issue special regulations—Minister of Finance Regulation (Peraturan Menteri Keuangan/PMK)—to impose tax on income and profit derived by taxpayers from e-commerce market.
The PMK will only regulate the procedure in collecting tax on e-commerce transaction, without adding types or number of tax subject or object. During the process, the Directorate General of Taxes (DGT) will involve third party as the tax withholder, i.e. parties facilitating the e-commerce transaction, like online shop or courier service provider.
Several people consider e-commerce as a new potential economic sector that creates new start-ups, notably dominated by Micro, Small, and Medium Enterprises (MSME). They assume that overly aggressive tax approach will become stumbling block for the start-ups in expanding its e-commerce business.
Whereas, we should not forget that e-commerce also becomes an attraction for the global giant digital players, like eBay, Alibaba, and Jingdong, which have exercised their controls in Indonesia. It is not something impossible—even very possible—that e-commerce market in Indonesia is controlled by the small number of those giant digital players. Without any tax imposition, the concern about competition imbalance between local and global digital players may really happen.
Prof. Jan J. P. de Goede, an expert in European and International Taxation Law from Lodz University, Poland, considered that Indonesian taxation regulations shall be adjusted in line with the digital development.
So far, the taxation basis refers to two classic models. First, it is based on sourced theory, where from the offering perspective, a company revenue is derived from the utilization of physical production equipment. Second, it is based on benefit theory, where a state can collect tax upon benefit or profit earned from utilization of goods and public services.
Besides, in digital world, the tax object is dynamic and the transaction is unseen, that flexible policy is required to tax it. This new digital business model, according to Jan, effectively reduces the taxation rights of the state. It is because the business model omits the physical presence of the company in earning its revenue. Hence, the taxation systems under those two classic theories shall be updated and adjusted keeping up with current and future conditions.
Nevertheless, he reminded, digital economic potential not only covers e-commerce. The transaction types relatively diverse, like app stores, online advertisement, cloud computing, participative networking platforms, and high speed trading payment services.
A Professor of Taxation in University of Indonesia, Prof. Dr. Gunadi, M. Sc., Ak. considers that the change of conventional consumption pattern into digital one actually brings up opportunity for the DGT to make the taxation process for business more efficient. However, that additional value is now still untapped by the Authority due to lack of preparation.
To be able to tax e-commerce transaction, the DGT is expected to develop a digital-based taxation system. Thus, every transaction made will be automatically recorded through tax payment and reporting system. Also, during a tax audit, the Tax Authority will easily track the online shopping transaction. It is because all e-commerce transactions will be recorded in the digital database.
Hence, establishing taxation system that is integrated with National Payment Gateway is a must. It can only be implemented if access to taxpayers’ financial statements is no longer forbidden for the Tax Authority.
Since the implementation of taxation reform part I in 1983, the taxation system in Indonesia has given full rights to the taxpayers to calculate, pay, and report their tax obligations (self-assessment) to the Tax Authority. Previously, the tax payable amount stipulation was the sole right of the Tax Authority (official assessment).
The change in taxation system indirectly reduces the role of tax officers. Like a football formation, the attacking strategy seems to change into a defensive one.
Gunadi perceives this method to be useless in facing the dynamic digital transaction pattern and that maybe only small number of transactions are recorded in the banking system. Thus, the Tax Authority shall be more active in strengthening its defensive line, to be at least in line with the taxpayers when the transaction takes place.
It means, notably for e-commerce transaction, the self-assessment taxation system shall be adjusted to give considerable discretion for the Tax Authority, without reducing the rights of the taxpayers. Hence, any additional economic value arising from the transactions (including e-commerce) will no longer slip from tax.