Although the country has established a digital tax as a new income source, the additional revenue is likely to be limited during the next few years because digital transactions remain small, said IMF mission chief for Indonesia Thomas Helbling.

“It is unlikely to offset the loss in corporate income tax from the reduction in tax rates,” he told The Jakarta Post on Wednesday.

The government has cut corporate income tax from 25 percent to 22 percent this year and will cut it further to 20 percent in 2022. The cuts apply to almost all business sectors and are part of an effort to keep the private sector afloat during the pandemic.

Read also: Exclusive: IMF raises concern over environmental standards in Job Creation Law

The government has implemented the digital tax policy, which enables it to levy a value added tax (VAT) on taxable intangible goods or services sold by global technology companies and charge income tax or electronic transaction tax on e-commerce outlets operated by foreign individuals or digital companies that have a significant economic presence. The threshold of a “significant economic presence” is determined through a company’s gross circulated product, sales and active users in Indonesia.

“While bringing corporate tax rates closer to neighboring countries can help maintain Indonesia’s attractiveness, taxes are only one factor,” Helbling said. “In fact, Indonesia urgently needs broad-based tax reform that boosts the resources available to the government.”

Popular

Whisky, big-screen TV seized from prison 'villas' in West Java

Indonesia pushes cooperation to outpace global scam networks

Jakarta international airport extends closure after Anak Krakatau eruption