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View all search resultsIs Indonesian digital tax policy discriminatory?
The ETT may be inconsistent with the principles of international taxation.
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T
he development of technology has brought unprecedented global economic development from a brick-and-mortar economy to a more digitalized economy without establishing physical presence.
On the other hand, this also triggers legal problems in the context of taxation, which then becomes an issue of trade between countries. The absence of a permanent establishment has made tax authorities in various jurisdictions unable to impose domestic income taxes on various digital companies abroad generating income from their countries. The failure to deliver on a global consensus in the Organization for Economic Cooperation and Development (OECD)/Group of 20 Inclusive Framework in 2020 encourages unilateral tax approaches by big market countries.
One of the countries triggered to enact unilateral measures is Indonesia, based on Law No.2/2020. This law, enacted in May 2020, provides a legal basis for the imposition of income tax or electronic transaction tax (ETT) on electronic commerce conducted by non-resident tax subjects that meet the provisions of having a significant economic presence.
The tax will be imposed on the sale transactions of goods and/or services from outside of Indonesia through the e-commerce system to buyers or users in Indonesia carried out by non-resident tax subjects, both directly and through foreign e-commerce operators.
However, Indonesia’s move quickly received attention from the 0ffice of the United States Trade Representative (USTR), a government agency responsible for developing and recommending US trade policy to the president of the US.
The agency considers Indonesian ETT as a unilateral measure to tax the digital economy, similar to the Digital Services Tax (DST) scheme imposed by other countries such as the European Union, India, Italy, Turkey and so on. The US government then started an investigation based on Section 301 of the US Trade Act 1974 that will allow the US government to impose trade sanctions on other countries on a unilateral basis.
In a document titled Section 301 Investigations Status Update on Digital Services Tax Investigations of Brazil, the Czech Republic, the European Union and Indonesia released by the USTR on Jan. 13, the USTR finds that Indonesia's ETT raises several concerns that are relevant to the USTR's Section 301 investigation.
