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Jakarta Post

Taxing digital economy, should we wait?

  • Toriq Rahmansyah and Dimas Hermawan Novi Adhi

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PREMIUM
Jakarta   /   Thu, October 10, 2019   /  09:23 am
Taxing digital economy, should we wait? Under a destination principle rule in VAT, a country can tax goods or services that are consumed in the country regardless of the origin of the sellers (either residents or nonresidents). However, the application of destination principle and VAT collection from nonresident sellers is not easy, considering the fact that they can run their business and sell goods or services without having a physical presence. (JP/Dhoni Setiawan)

Many countries are now facing a major issue concerning digital economies: they cannot impose taxes (either direct or indirect) on digital companies selling digital and non-digital goods or services through websites or online platforms. This issue arises because current international tax rules are no longer compatible with digital business models. For direct taxes, especially income tax, a source country cannot tax digital companies because there is no nexus or relationship between an income and the country where the income is generated. Due to international tax rules, a source country has the right to tax business profits derived by foreign residents only if there is a fixed place of business called a permanent establishment (PE) in the country. Unfortunately, in many tax treaties, including those of Indonesia, the word “fixed place” mainly refers to a physical presence...

Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.