Big internet companies have been asked by the Indonesian government to pay value-added tax on sales of digital products and services from July, a move that other countries may also adopt as they seek to boost revenues following the coronavirus pandemic.
Indonesia will impose a 10% VAT on digital products sold by non-resident internet companies with a significant presence in the Indonesian market, including streaming services, applications and digital games, beginning July 1, as per a regulation published on the finance ministry’s website.
Earlier, Indonesian authorities had said services by streaming platforms like Spotify and Netflix would be among those subject to the new tax. The COVID-19 pandemic has accentuated a push by governments around the world to tax internet giants, who could see a boost in revenues as people stay at home during global lockdowns, experts believe.
“In the absence of a global compact on digital taxation, unilateral moves will flourish,” said Chatham House Asia Fellow Vasuki Shastry. “The fiscal hole due to Covid-19 makes it unstoppable.”
About 140 countries from the Organisation for Economic Cooperation and Development (OECD) are negotiating the first major rewriting of tax rules to take better account of the rise of big tech companies such as Amazon, Facebook, Apple and Google that often book profit in low-tax countries. France has also announced plans to impose a digital tax levy in 2020.
The fallout from covid-19 outbreak is expected to make many countries even more in need of cash to revive their economies as they are set to experience deep recessions this year.
While Indonesia has decided to get internet companies to pay their fair share of taxes for years, the move to impose VAT was announced in March under emergency measures outlined by President Joko Widodo to help the country weather the coronavirus crisis. The package was passed by parliament on Tuesday.
The digital economy of Indonesia, country with a population of nearly 270 million, is booming and is expected to reach $130 billion by 2025, according to a study by Google, Temasek Holdings and Bain & Company.
Imposition of VAT on internet goods was to make sure the government captures the shift in people’s consumption patterns as they stay at home during a lockdown to curb the spread of the virus, said Indonesian Finance Minister Sri Mulyani Indrawati.