Indonesia cracks down on e-commerce to raise tax collection

This picture taken on 9 October, 2018 shows Indonesian Finance Minister Mulyani Indrawati speaking during a forum prior to the start of the IMF and World Bank Annual meetings in Nusa Dua, on Indonesia’s resort island of Bali. (AFP pic)

JAKARTA: Indonesia is bringing in new rules requiring e-commerce sellers to share data with authorities, while also stressing that they must pay taxes, the finance ministry said on Monday.

Surging smartphone use and a rising middle-class income in Indonesia, home to 260 million people, has made its e-commerce industry a battleground for foreign investors.

Spending in the Indonesian e-commerce market is projected by consultancy McKinsey to rise from US$8 billion last year to as much as US$65 billion by 2022, similar to the growth trajectory experienced in China between 2010 and 2015, and the government is trying to squeeze more from a market that traditional retailers have alleged avoids taxes.

From April all operators of online marketplaces will have to detail each seller’s turnover and report this to authorities, the ministry’s tax spokesman Hestu Yoga Saksama said.

The rules would apply to all online marketplace operators in Southeast Asia’s largest economy, including Lazada and Tokopedia, which are both backed by Chinese e-commerce giant Alibaba, and Bukalapak, which counts China’s Ant Financial among its investors.

The tax department said an online seller that makes at least 4.8 billion rupiah (US$339,943) in turnover must charge value-added tax to customers and pay this to the authorities.

A seller must also pay income tax of 0.5% of turnover if it is a small or medium-sized business, or a 25% corporate tax of profit if it is big enterprise, bringing the sector into line with requirements for conventional retailers.

There were no new taxes being applied, but the rules were put in place to clarify what taxes each player in a marketplace is obliged to pay and to “create an equal treatment with conventional businesses,” the tax department said.

Indonesia’s E-Commerce Association criticised the new rules, saying online sellers would instead choose to sell their products through social media, CNBC Indonesia reported.

Tokopedia and Bukalapak both said they are still studying the possible impacts caused by the rules.