The U.S. government through the United States Trade Representative (USTR) considers the application of digital taxes in a number of countries, including Indonesia, are discriminatory and burdensome to U.S. digital companies.
The assessment is the result of USTR investigation since June 2020 into the implementation of digital tax policies in several countries such as Brazil, the Czech Republic, the European Union, and Indonesia.
In accordance with its authority in Section 301 of The Trade Act of 1974, USTR explains that the purpose of its investigation is to find out whether the digital tax policies in these countries impede the protection of Intellectual Property Rights or market access for US products.
In Indonesia's context, the USTR investigation is a response to the issuance of Government Regulation in Lieu of Law (Perppu) Number 1 of 2020 in March 2020 (now Law Number 2 of 2020), which among other things regulates the imposition of income tax (PPh) and electronic transaction tax (PTE) on digital economic activities.These digital taxes are imposed on goods and/or services from abroad that are sold to consumers in Indonesia through an electronic system or online.
3 Concerns of the USTR
Even though the investigation process has not been completed, USTR has made a number of statements containing at least three concerns over Indonesia's digital tax policy.
First, USTR considered Indonesia's digital tax policy to be discriminatory because it only targets non-resident tax subjects, but does not apply to digital companies from Indonesia.
Second, USTR considered Indonesia's digital tax policy to be inconsistent with global taxation principles. Particularly related to Permanent Establishments (BUT), extraterritoriality, and the risk of double taxation.
Third, USTR also argued that Indonesia's digital tax policy could increasingly burdensome and limit the trade of US digital companies. In this case, USTR sees that U.S. companies have to pay higher taxes as well as submit reports and comply with other administrative requirements.
On this basis, USTR will continue the investigation by monitoring the implementation of digital taxes by the Indonesian Government.