The tax office was in a negotiation process with the tech firms to ensure that they were “ready and comfortable” to impose VAT on their Indonesian customers, spokesman Hestu Yoga Saksama said during a discussion held by the Center for Indonesian Policy Studies (CIPS).

“We are convinced that more tech firms will collect VAT this year,” Hestu told the discussion on Thursday. However, he declined to name the companies or reveal how much the government expected to earn from such policy.

Under the new rules, nonresident foreign firms that sell digital products and services in Indonesia worth at least Rp 600 million ($41,038) a year or generate yearly traffic from at least 12,000 users will be required to pay the 10 percent VAT.

The over-the-top (OTT) technology firms appointed by the tax office as VAT collectors are expected to start collecting the taxes in August. The VAT is imposed on sales of tech firms including Amazon Web Services, Netflix, music streaming service Spotify as well as Alphabet’s Google for its Google Asia Pacific, Google Ireland, and Google LLC units.

The government has been struggling to collect more revenues to fund its widening budget deficit of 6.34 percent of the gross domestic product (GDP) as the COVID-19 pandemic hits businesses, which prompted the government to provide Rp 120 trillion worth of tax incentives.

The tax office is looking to bolster revenue in the second half of the year after recording Rp 531.7 trillion revenue in the first half, down 12 percent compared to the same period last year and around 44 percent from this year’s tax revenue target.

The Organization for Economic Cooperation and Development (OECD) has yet to reach a consensus on how to tax tech firms, preventing Indonesia from collecting corporate income tax from the internet giants.

“We will wait for the global consensus to give us the best solution” on taxing tech firms, Hestu went on to say, reiterating that the plan to tax internet firms would provide a “level-playing field” between foreign firms and local internet firms.

OECD member countries are negotiating the first major rewriting of income tax rules to take better account of the rise of big tech companies that often book profit in low-tax countries.

Meanwhile, Center for Indonesia Taxational Analysis (CITA) deputy director Ruben Hutabarat warned the government to not make any sudden move to impose income tax on foreign tech firms, adding that it may lead to retaliation from other countries, such as the United States.

“The VAT rules should only be temporary until the global consensus is reached,” Ruben told the discussion, adding that the tax office should act decisively if the tech firms failed to comply.

Netflix representatives told The Jakarta Post recently that the company would comply and was currently waiting to implement the VAT rules starting in August.

The United States Trade Representative office previously said that it would investigate digital services taxes in several countries, including Indonesia, as Washington opposed efforts to tax revenue from tech giants like Apple and Google.

Finance Minister Sri Mulyani Indrawati said recently that Indonesia’s VAT rule was not the subject of trade investigation by the US, adding that it took issue with corporate income tax, which remains a subject of discussion led by the OECD.

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