The new obligation is based on Finance Ministry Regulation No. 190/2022 (PMK 190), which stipulates that certain transmitted intangible goods, such as software, operating systems or digital tools electronically, are subject to import duty.

American Chamber of Commerce in Indonesia (AmCham Indonesia) managing director Lin Neumann called the arrangement “potentially bad for business” as it created an “unnecessary level of complexity”.

“I think it’s potentially counterproductive if it continues. We would like to see it not continue,” Neumann told The Jakarta Post on Thursday, adding: “It’s not going to accomplish anything useful.”

Currently, the duty is set at zero percent, meaning that importing parties do not have to pay anything, but that could change at any time.

“At the moment, they say it’s zero duty, so there’s no duty yet, but [it is hard to] imagine why you would put such a regulation in place if you didn’t intend, later, to impose duties,” said Neumann.

PMK 190 also obliges those involved to submit import details and documents to customs authorities, which Indonesia Services Dialogue (ISD) Council executive director Devi Ariyani said was an “administrative burden”, given that firms would have to allocate resources to deal with such filings.

Devi criticized the obligations as a new hurdle for micro, small and medium enterprises (MSMEs) and start-ups, given that smaller companies were typically less familiar with legal paperwork.

“How it impacts digital adoption needs to be weighed in more carefully. If we’re expecting MSMEs to embark on digital adoption [so as to] accelerate their growth, how can we achieve that, if there’s such a barrier,” Devi told the Post on Thursday.

She said the impact would be felt throughout the whole digital ecosystem, since it would make the acquisition of digital tools more expensive, while the exact opposite should apply, given that such tools were essentially a means of production for a lot of enterprises.

PMK 190 has been in place since January, and failure to comply should result in punishment, but there is uncertainty over its implementation, since customs authorities only began to publicize the new rules a few weeks ago.

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Nailul Huda, who heads the Center of Innovation and Digital Economy at the Institute for Development of Economics and Finance (Indef), argued that the most problematic aspect of the regulation’s implementation was how to enforce border control in the case of intangible goods.

“Supervising intangible goods is hard to do; what kind of surveillance system would be put in place to implement this rule?” Nailul told the Post on Thursday.

Nailul emphasized that the intangible goods in question were vital for technological development, and placing import duties on them meant creating an additional development burden, especially given that domestic producers did not yet have the competence to build such goods onshore.

The duty could be viewed as the government’s attempt to give local businesses an edge over international competitors, but Neumann suggested that any such attempt would be pointless.

“If you want to compete in the digital economy, you should have invested years ago in building the infrastructure for the digital economy,” said Neumann, after stating that all the government’s efforts over the past 10 years to help local business thrive had not prevented the arrival of foreign giants into the domestic market.

Assuaging concerns, however, he emphasized that this was merely “another thing to deal with” for businesses. PMK 190 was not causing any panic, but “it’s an impediment to the growth of the digital economy”.

Devi questioned the motive behind the imposition of the rule, saying that, if the government was looking to generate more state revenue though the duty, it needed to remember that these intangible goods could not be operated without their tangible counterparts, such as hardware.

“If digital adoption flourishes, it will increase the use of intangible goods, which would translate to greater purchases of tangible goods. I say the government doesn’t need to be afraid of a potential loss of revenue, because [both will increase together],” said Devi.

Previously, 29 international business associations expressed concern about the enforcement of PMK 190 through an official letter addressed to Finance Minister Sri Mulyani Indrawati.

The associations called the duty “an unprecedented measure” that impeded Indonesia’s digital trade and economy, since it could cause uncertainty and impose onerous costs.

“Investors in Indonesia’s digital economy are concerned about the negative impacts of the proposed provisions in PMK 190, especially as the ministry did not provide a notice and comment period or clarity on the coverage of intangible goods, the timeline, and procedure of its implementation,” reads the letter obtained by the Post, dated April 3.

The Finance Ministry declined to comment on the matter, while the customs office did not immediately respond to the Post’s inquiry.