Indonesia imposes 10% tax on sales by technology firms

Indonesia has imposed a 10 percent value-added tax on sales by technology firms including Amazon, Netflix, Spotify and Google.
digital strategy for CIOsThe Southeast Asian country’s tax office said in a statement that it had already assigned tax identification numbers to Amazon Web Services, Netflix, Spotify and Alphabet’s Google for its Google Asia Pacific, Google Ireland, and Google LLC units.

Indonesia, the world’s fourth most populous country with a population of nearly 270 million, is experiencing a boom in its digital economy which is expected to reach $130 billion by 2025, a study by Google, Temasek Holdings and Bain & Company predicts.

It expects a 13 percent yearly drop in state revenue this year as the pandemic hits business activity, which combined with nearly $50 billion for the fight against the coronavirus is forecast to more than triple its 2020 budget deficit.

Non-resident foreign firms which sell digital products and services in Indonesia worth at least 600 million rupiah ($41,667) a year or which generate yearly traffic from at least 12,000 users will be required to pay the 10 percent VAT under the new rules.

“The tax office will continue to communicate with relevant businesses abroad … the number of companies assigned to apply VAT for digital products will likely increase,” tax office spokesman Hestu Yoga Saksama said.

A Netflix spokesman told Reuters that it would comply.

“It is for governments to decide the rules on VAT and in every country we operate, Netflix respects those rules.”

Amazon Web Services, Google, and Spotify did not immediately respond to requests for comment.

The United States Trade Representative office has launched an investigation into Indonesia and other countries for adopting or considering Digital Services Taxes, but Indonesian Finance Minister Sri Muyani Indrawati said the VAT move was not part of this.

Meanwhile, a lobby group representing U.S. technology giants has said its members are not yet ready to make the first payment of the country’s digital tax due this week, urging New Delhi to defer the move.

India in March said all foreign billings for digital services provided in the country would be taxed at 2 percent from April 1, a move that caught U.S. technology firms off guard as they were battling the coronavirus pandemic.

The tax applies on e-commerce transactions on websites such as Google has been worried as the tax applies on advertising revenue earned overseas if those ads target customers in India.