Though Indonesia is taking part in international negotiations under the Organization for Economic Cooperation and Development (OECD) to rewrite global tax rules in response to the rising prominence of tech firms, the government will not wait for a final agreement on the matter, expected later this year.   

Faced with a steep decline in tax receipts due to the pandemic-induced economic recession, the government decided to join six other countries in Asia and Europe that have collected such taxes despite the threat of retaliation from the United States Trade Representative.

The argument behind the law quite strong. It is imperative to create a level playing field because currently only domestic providers of digital products are obliged to collect the 10 percent VAT in accordance with the 2009 VAT Law.

Furthermore, Indonesia has seen a fast-growing digital economy with potentials estimated by analysts to reach US$135 billion in 2025. The pandemic and associated social and physical restrictions have caused commerce to shift online, as consumer purchases have increasingly been made through digital channels and streaming networks for games, music and movies and online conferencing services.

Our big concern, though, is the institutional capacity of the Taxation Directorate General to administer and manage the VAT.

Administratively, collecting taxes on digital products from overseas is complex because such products are intangible and therefore difficult to monitor. Monitoring is important for obtaining information on subscriber numbers and transaction values, which are needed to calculate the VAT.

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