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Indonesia-U.S. Digital Tax Dispute Comes to a Deadlock, WTO Intervenes

Wednesday, 27 January 2021

Indonesia-U.S. Digital Tax Dispute Comes to a Deadlock, WTO Intervenes

JAKARTA. The digital tax dispute between the Government of Indonesia and the United States (US) will continue through the World Trade Organization (WTO) forum. This is because the negotiations conducted by the two countries are deadlocked.

Citing Bisnis Indonesia daily, Wednesday edition (27/1), there are two main disputes that made the WTO finally intervened.

First, the US through the United States Trade Representative (USTR) objected to the application of classification of goods and exemption of import duty tariffs on software. The provision is contained in the Minister of Finance Regulation (PMK) No. 17/PMK.010/2018.

According to the government, the U.S. is the only country that has objected to this policy. In fact l, the regulation that regulates the virtual goods import duty rate is 0%, and the obligation for companies to report imported digital goods applies to all countries.

It is recorded that several countries import digital goods to Indonesia other than the U.S., namely China, Sweden, The United Kingdom, Singapore and Ireland, with a foreign exchange value of USD 12.5 million.

Meanwhile, the value of Income Tax (PPh) collected was more than IDR 3.7 billion and Value Added Tax (VAT) amounted to IDR 18.8 billion.

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

Second, USTR objected to the substance of Government Regulation in Lieu of Law (Perppu) No.1 of 2020, regarding the tax on digital economy.

The regulation is the basis for the government to be able to collect VAT on Trading Through Electronic Systems (PMSE) and income tax or electronic transaction  tax (PTE).

Indeed, Indonesia has not issued more detailed rules on PTE schemes and tariffs so far.

However, the US considers the policy to be discriminatory because it only targets non-resident tax subjects. The conclusion was issued after USTR conducted an investigation into Indonesia's digital tax policy.

To respond to these various accusations in the WTO forum, the government has prepared a special team consisting of the Ministry of Foreign Affairs, representatives of the Ministry of Finance, and related institutions.
 



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