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Jakarta Post

Sri Mulyani insists Google must pay taxes in Indonesia

Sri Mulyani insists Google must pay taxes in Indonesia Less talk, more action: Finance Minister Sri Mulyani Indrawati speaks to the media after her inauguration ceremony at the State Palace in Jakarta on July 27. (AP Photo/Tatan Syuflana)
Grace D. Amianti
Jakarta   ●   Fri, December 23, 2016

The government will ensure the US-based technology giant Google can operate its business freely in Indonesia if it complies with the country’s tax laws and regulations, Finance Minister Sri Mulyani Indrawati says.

She asserted that the government would always welcome any corporate activity into the country and did not expect to disrupt the investment climate. However, the state also had the right to collect taxes fairly as the company had also benefited from its business in the country, Sri Mulyani said.

The tax office has pledged to step up investigations into the Indonesian operations of Google after the company declined to pay the tax arrears demanded by the government. Acknowledging the company’s role in bringing a number of technological benefits to Indonesia, Sri Mulyani insisted the “unprecedented measure” must be carried on.

“I want to build trust. You run a business in Indonesia and create value, thus I will respect every investment you put into here, but at the same time if there is an economic value coming from your business activity here, Indonesia must strive for its right [to impose taxes],” she said after giving a speech on Thursday.

Recent negotiations between the company and the tax authority failed because of the low payment offered by the technology behemoth in comparison with what the tax office found to be the company’s earnings.

Amid the government’s dire need for new tax sources and a boost in state revenues, the tax office has estimated that Google owes about Rp 5 trillion (US$371.42 million) in back taxes and penalties.

(Read also: Indonesia launches tax hunt on Google)

An employee of Google Korea works at its office in Seoul, South Korea. (Newsis via AP/Kim Jin-a)

The tax office has served Google with a summons for January related to its investigation into the company’s financial reports, including its overall transactions in Indonesia. The company will be requested to pay its due taxes with a 150 percent penalty.

If the company rejects the government’s request, the tax authority will carry out a full investigation and apply a blistering 400 percent fine as stipulated in the General Taxation System (KUP) Law.

Sri Mulyani said she had ordered the Finance Ministry’s Directorate General of Taxation to investigate and continue communicating with the company in preparation for more a detailed discussion next year regarding the basis of the calculations.

“The government has done many reviews on the estimated volume and values of Google’s transactions, while the company also has its own version. However, in the end, both parties will hold one set of data that can illustrate a verified, credible and legitimate value,” she said.

Sri Mulyani said she was optimistic that Google would understand and respect the government’s intention, so that it would help both parties to stand on the same ground regarding the process.

Previously, tax director general Ken Dwijugiasteadi said executives handling the Indonesian operations of Google might face criminal charges and possible imprisonment if the firm is found guilty of tax evasion as there had always been equal treatment for all taxpayers in the country.

(Read also: Indonesia challenges Google to disclose financial reports)

Google Indonesia managing director Tony Kuesgen during the announcement of Year in Search 2016.(Google Indonesia/File)

Indonesia, which has a low tax-to-gross domestic product (GDP) ratio of 11 to 12 percent compared to its regional peers, will also go after social media giant Facebook to make it pay its proper taxes for its local operations.

The Organization for Economic Cooperation and Development (OECD) refers to such behavior as base erosion and profit shifting (BEPS) tax avoidance strategies.

The government tried to force over-the-top companies Google, Twitter, Yahoo and Facebook to each set up a Permanent Establishment (BUT) through a Communications and Information Ministry circular letter. As a BUT, they would each be required to report all domestic earnings from work activities in the nation and pay taxes.

“I support any decision from the Finance Ministry as the fiscal and tax authority, but I can’t meddle [in the calculation process]. I will continue asking Google to settle the issue,” Communications and Information Minister Rudiantara said on Thursday.