The Finance Ministry’s Taxation Directorate General international taxation director, John Hutagaol, said the government was preparing regulations on the issue.

The government is also awaiting a consensus that is set to be reached by 2020 hopefully after a report issued by the Inclusive Framework on Base Erosion Profit Shifting (BEPS).

The Inclusive Framework on BEPS is a working group under the Organization for Economic Cooperation and Development (OECD) that brings together over 125 countries and jurisdictions to fight against global tax avoidance.

“[We] are preparing regulations with a view to expanding the definition of permanent establishment and antitax-avoidance rules — such as the Special Anti-Avoidance Rule [SAAR] and General Anti-Avoidance Rule [GAAR] in responding to the latest developments in the digital economy,” said John.

He added the Inclusive Framework allowed its members to pursue their own initiatives before a global consensus was reached. The measures, however, should be revoked by members if they contradicted the measures agreed by the Inclusive Framework.

He further said the Inclusive Framework suggested that its members collect indirect tax such as value added tax (VAT), general services tax (GST) or sales taxes according to the members’ domestic regulations.

The G20 finance ministers and central bank governors issued a communique after a recent meeting in Fukuoka, Japan, which endorsed a “two-pillar approach” developed by the Inclusive Framework in response to taxation challenges posed by the increasing digitalization of the global economy.

The reaching of a consensus could deal a major blow to multinational companies, such as Facebook and Google, among others, that avoid taxes by registering their profits in countries with low tax rates while also challenging countries that use low tax rates to attract foreign investment.

The first pillar addressed several mechanisms for taxing businesses that were able to create value from their business models despite a minimal physical presence, or indeed none at all, in their market jurisdictions, while the second pillar addressed a global consensus in which countries agreed on a minimum tax rate in order to avoid tax-avoidance practices.

Tax office spokesman Hestu Yoga Saksama said the two pillars would help the government in taxing multinational over the top (OTT) businesses that generated profits from Indonesian consumers.

Hestu, in concurrence with John’s statement, said the tax authorities were exploring a number of taxation models to capture tax potential from cross-border transactions in the digital economy sector, adding that such a model would also provide a level playing field for domestic digital economy players, which are subject to local taxation.

“It will create fairness and a level playing field for [foreign] start-ups or digital economy [players] as domestic businesses already have income tax obligations because they are subject to local tax,” said Hestu.

Danny Darussalam Tax Center (DDTC) managing partner Darussalam suggested the government, while waiting for a global consensus on taxation for the digital economy, prepare amendments to the General Taxation System (KUP) Law, particularly its articles regarding permanent establishment so as to define offshore businesses that sell their goods and services to the domestic market as taxable businesses.

Center of Indonesia Taxation Analysis (CITA) executive director Yustinus Prastowo said the government could also revise its regulations to impose VAT on digital economy players while waiting on the global consensus.

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