T

em>The government will provide a transition period for foreign tech giants offering services in the country to set up permanent entities and pay taxes or risk having their services shut down.

Communications and Information Minister Rudiantara said recently that a draft regulation was in motion to force such a policy on the companies, with the government, however, promising to provide enough time for them to comply.

'€œWe'€™re discussing it. There has to be a transition period, as we understand that it will have implications for the public, which is already using their services,'€ he said, adding that the length of the transition period was also still under discussion.

The government previously warned that it would block operations of any foreign tech giants failing to set up an entity in the form of a limited liability firm, locally called perseroan terbatas (PT).

At present, internet heavyweights such as Google, Facebook and Twitter operate only through representative offices and not permanent establishments.

Under such a mechanism, the government cannot collect taxes from the companies despite their profitable operations in Southeast Asia'€™s largest economy.

Digital advertisement in the country stood at more than US$800 million last year, 70 percent of which are enjoyed by Facebook and Google, according to data from the Communications and Information Ministry.

Indonesia has the fourth largest Facebook user base with some 65 million people active in the social network.

The government is struggling to meet this year'€™s tax collection target of Rp 1.36 quadrillion (US$102 billion), up 10 percent from last year, amid the sluggish economy caused by the impacts of a global economic slowdown.

Rudiantara explained that his ministry and the Finance Ministry were now preparing a ministerial decree to be launched at the end of this month or early next month to regulate the matter.

The regulation will require international tech giants to be permanently established in the form of either wholly owned local entities, joint ventures or partnerships with local telecommunications operators.

Rudiantara, who is an IT industry veteran himself, said the government aimed to create a level playing field for foreign and local technology companies, with the latter already obliged to pay taxes.

Former trade minister Mari Elka Pangestu said she lauded the government'€™s intention to create fair competition between local and foreign players, but warned that a professional approach should be taken.

'€œIt'€™s worth [looking for] a solution that makes the tax easy to impose and that won'€™t create difficulties for the e-commerce [industry] and its businesses,'€ she said.

Rudiantara said that apart from requiring permanent establishment, his ministry and the Indonesian Association of Indonesian Cellular Operators (ATSI) had joined forces to develop three local tech providers this year with the aim of dominating the local market.

Indonesia is striving to develop the digital economy as part of attempts to reduce the country'€™s heavy reliance on natural commodities.

The government targets US$130 billion in e-commerce transactions by 2020, hoping the industry could contribute more to the country'€™s gross domestic product (GDP).

Facebook and Google have recently drawn anger in Europe for accounting practices aimed at avoiding high taxes.

Facebook has announced that it would soon alter how it paid taxes in the United Kingdom, thus providing leeway for the tax authorities there to collect more taxes.