Not only has Indonesia seen the emergence of several unicorns and even a decacorn, showcasing success in fostering digital micro, small and medium enterprises (MSMEs), but digital services are also a growing export sector that made up 60 percent of total services exports in 2021, and 6 percent of total exports.

Indonesia’s successful digital agenda during its 2022 G20 Presidency and 2023 ASEAN chairmanship is a testament to the country’s growing role as a global and regional thought leader.

More recently, at the World Trade Organization ministerial meeting in February, and amid much anticipation, Indonesia renewed its commitment to the WTO ban on import tariffs on data flows and digital products – also known as the Moratorium on Customs Duties on Electronic Transmissions (the Moratorium).

This will primarily benefit MSMEs across the country by ensuring that costs of digital inputs are kept low and Indonesia’s growing digital services exports remain competitive as they enter new markets.

Now, there is high interest in Prabowo Subianto’s incoming presidential administration and the direction it will take. The DPA sees this as the perfect moment for Indonesia to emphasize its role as a driver of economic growth and opportunity in the region, especially as local digital businesses begin to stand on equal terms with their global peers. The digital business community as an industry now eagerly awaits the upcoming regulatory developments for digital transformation.

A key enabler

The Digital Prosperity for Asia (DPA) Coalition, which represents digital MSMEs across the Asia-Pacific region, sees the moratorium extension as a signal that Indonesian decisionmakers are deeply committed to enabling the ongoing digitalization of local industries and strengthening Indonesia’s digital economy.

My firm, IOTA Kreatif Media, helps develop creative and digital products like games, applications and websites and depends strongly on many digital services from a variety of sources. That is why we joined the DPA Coalition.

The Indonesia Services Dialogue Council (ISD) found that Indonesia’s export performance depends on digital goods from its key trading partners, and vice versa. The Moratorium extension is a deeply encouraging development, facilitating access to emerging technologies only available via cross-border digital trade for digital small and medium enterprises (SMEs), opening the possibility for them to achieve their fullest potential, and promoting competition among firms which drives costs down for consumers.

Prime opportunities on Indonesia’s doorstep

Leveraging Indonesia’s influence at multinational forums can be a strong tool in creating opportunities for local Indonesian digital SMEs and solidifying Indonesia’s role as an anchor of the region’s digital economy.

The DPA supports Indonesia’s  participation in the plurilateral Agreement on E-commerce at the WTO, which recently announced the conclusion of negotiations. The agreement not only extends the Moratorium, but makes it permanent. We are proud that Indonesia is at the forefront of this agreement, on the same page as large trading nations and regions such as the European Union, the United Kingdom and China – potentially leveling the playing field for Indonesian digital exporters and their foreign counterparts.

Another callout would be the ASEAN Digital Economy Framework Agreement (DEFA), which was launched under Indonesia’s ASEAN Chairmanship in 2023. The DEFA presents an opportunity to minimize digital trade barriers and foster an open digital economy in the region—which is a net positive for Indonesian digital businesses hoping to access foreign markets. Similarly, we hope that Indonesia will pursue ambitious outcomes, including making the moratorium permanent in ASEAN.

The DPA also welcomes Indonesia’s accession to the Organisation for Economic Co-operation ajnd Development (OECD), and we are excited about the opportunity for Indonesia to align with best global practices, including supporting the “free flow of information to catalyze innovation and reduce barriers to investment in digital technologies in all sectors.”

Cross-border digital trade benefits the creative economy, which accounts for eight percent of Indonesia’s gross domestic product. Minimizing digital trade barriers can enhance Indonesia’s digital export competitiveness, ultimately attracting investments for Indonesia's growing industries like animation and gaming.

Moreover, entrepreneurs, artists and content creators need enhanced connectivity to expand their reach to wider domestic and international audiences. They are the ones who can leverage digital technologies to promote Indonesia’s cultural economy, fortifying Indonesia’s global presence.

Current challenges and policy outlook

Challenges do remain which may impede the prospects of small businesses, however. Some regulatory initiatives may inadvertently impose greater barriers on cross-border digital trade, which can affect small businesses like those of IOTA and other DPA members.

For example, the Finance Ministry’s Ministerial Regulation 190/2022 on Imported Tangible and Intangible Digital Products could introduce barriers affecting businesses using imported software.

Introducing more tariffs on digital products, which can happen without the Moratorium, can disproportionately impact Indonesia’s 22 million digital MSMEs. Thus, there is a need to carefully calibrate how regulations affecting the digital industry are developed and encourage an open approach that considers the concerns of SMEs and start-ups which are likely to be affected.

That Indonesia is committed to developing a vibrant digital economy is indisputable. The DPA is keen to help foster continued cooperation between the incoming government and the private sector with the aim of ensuring that the digital economy continues to grow and prosper, and introducing forward-thinking digital policies which place the needs of MSMEs front and center.

Looking ahead

The extension of the Moratorium underscores Indonesia's clear commitment to fostering digital trade growth and creating an open digital economy. The upcoming government transition presents a golden opportunity to continue and double down in this direction. Advancing a policy agenda to support an inclusive digital economy to benefit MSMEs will ensure Indonesia remains at the forefront of digital innovation and growth in the region.

Author: Eka Chandra, member of the Digital Prosperity for Asia (DPA) Coalition and CEO of IOTA Kreatif Media