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Digital Taxation in Indonesia

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Aicha Grade Rebecca

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With e-commerce transactions on the rise when fiscal pressures were mounting during the Covid-19 crisis, the Indonesian government decided to enact Law No. 2/2020. Among others, it aims to impose income taxes on electronic systems transactions by foreign service providers with ‘significant economic presence’ which would constitute a permanent establishment in Indonesia.

The Indonesian government also levied a value-added tax (VAT) on the provision of intangible goods or services in Indonesia. Some of the prominent foreign electronic system providers have been appointed as VAT Collectors and have been collecting, remitting and reporting VAT for the goods and services consumed by Indonesian users. However, VAT obligations require a well-functioning system to collect, report and submit VAT. Otherwise, Indonesia might share the experience of the EU, which struggles with low levels of compliance and a lack of enforcement.

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