Government Collects VAT on Foreign Digital Products As of 1 July 2020

JAKARTA. The Government through Government Regulation in lieu of Law (Perppu) Number 1 of 2020 provides special tax treatment of e-commerce activities (PMSE). One of the tax treatments is the imposition of Value Added Tax (VAT) on the utilization of Intangible Taxable Goods and / or Taxable Services from outside the Customs Area within the Customs Area through an electronic system. The validity of the VAT collection has been set at 10 percent. 

The collection, deposit, and reporting of VAT on digital products originating from abroad will be conducted by e-commerce business actors i.e. merchants/ providers of foreign services, providers of foreign e-commerce, or providers of domestic e-commerce designated by the Minister of Finance through the Director General of Taxes. The imposition of VAT on foreign digital products is officially enforced on 1 July 2020.

E-commerce business actors who meet certain transaction value criteria or the amount of traffic within 12 months are appointed by the Minister of Finance through the Director General of Taxes as a VAT collector. Business actors who have fulfilled the criteria but have not been appointed as VAT collector can submit a notification via online to the Director General of Taxes.

Just as the domestic VAT collector, the designated business persons are also obligated to deposit and report VAT. Deposit of VAT that collected from consumers must be made no later than the end of the following month. While reporting is done quarterly not more than the end of the following month after the quarter period ends.

With the enactment of this provision, digital products such as streaming music subscriptions, streaming movies, digital applications and games, as well as online services from abroad will be treated the same as conventional products that are consumed by people everyday who have been subject to VAT. This also applies to similar digital products produced by domestic business actors.

Read: Indonesia Cuts Tariffs on Corporate Income Tax and Officially Applies Digital Taxes

The imposition of VAT on the utilization of digital products from abroad is part of the government's effort to create a level playing field for all business actors, especially between domestic and foreign players, as well as between conventional businesses and digital businesses. In addition to creating equality among busines actors, the application of VAT for foreign digital products is also expected to increase state revenue which is currently very important as a source of funding to cope with the economic impact of the Covid-19 outbreak.

Complete arrangement of VAT collection, deposit and reporting procedures can be found in regulation of the Minister of Finance (PMK) Number 48/PMK. 03/2020 which copies are available at www.pajak.go.id. The criteria and the list of business actors appointed as the VAT collectors of foreign digital products will be announced later. (Ken)