Government Changes Calculation Scheme

AFP/GETTY IMAGES NORTH AMERICA/JUSTIN SULLIVAN

People pass by Facebook’s corporate logo on April 30, 2019 at the F8 Facebook Developers conference in San Jose, California, United States.

JAKARTA, KOMPAS — The government will change the scheme to calculate the tax obligation of giant internet-based digital companies or over-the-top companies. The amount of tax will be based on the volume of economic activity transactions, not the presence or absence of a permanent business unit.

Finance Minister Sri Mulyani Indrawati said the tax obligations of cross-country companies that ran businesses in Indonesia, such as Google, Facebook and Twitter, would no longer be based on whether there was a permanent business unit. But, rather on the economic benefits the companies gained in Indonesia.

"Indonesia will not await a global consensus [on this issue] because there must be tax revenues [for the state]. So, as I conveyed during the G-20 forum, before reaching a global consensus, every country has the right to take an approach they consider fair," Sri Mulyani said on Wednesday (12/6/2019) in Jakarta.

The Taxation Directorate General will calculate the amount of tax that technology-based companies must pay for carrying out transactions in Indonesia. The tax amount is calculated based on the volume of activity, transactions including sales, advertisements or other traces of transactions. The tax to be imposed is based on the Income Tax Law (PPh).

KOMPAS/IWAN SETIYAWAN

An invitee signs a commemorative panel at the launch of Google Indonesia on March 30, 2019 in Jakarta.

Sri Mulyani said the government\'s move to collect taxes from outside the permanent business unit might trigger disputes with the company. However, so far there have been no plans to revise the tax rules.

Indonesia\'s decision to change the scheme for calculating tax obligations follows that of Britain and France. Both countries have taken their own approaches, without global consensus, with reference to the volume of transactions in economic activities.

Adrianto Dwi Nugroho, a tax law lecturer at the School of Law of Gadjah Mada University, argues that tax collection from technology-based companies can only be implemented if they have subsidiaries domiciled in Indonesia. The arrangement refers to the double tax avoidance agreement (P3B).

KOMPAS/MEGANDIKA WICAKSONO

A display panel shows Indonesia at Facebook’s Asia-Pacific regional office in Singapore, as seen on Tuesday (13/11/2018). Google and Facebook Indonesia have not commented on Indonesia’s tax policy for global technology companies.

In the P3B agreement, the company domiciled in Indonesia has the status of a domestic taxpayer so that profits from digital services are subject to domestic corporate income tax. Meanwhile, the company remains a taxpayer overseas.

"If there is a subsidiary company that is domiciled in Indonesia, there is no need for a new tax because all operating profits can be subject to income tax," Adrianto said.

According to Adrianto, if the government only changes the interpretation of the existing rules, it would only trigger tax disputes. Therefore, there needs to be a new rule instead of modification or new interpretation of the prevailing rules.

Executive director of the Center for Indonesia Taxation Analysis (CITA), Yustinus Prastowo, said Indonesia needed to realize that the best option for collecting digital economic taxes was not only about the highest revenue potential. Indicators of the taxation system should rely on the principle of long-term justice. Indonesia must fight to get a fairer share of tax.

(KRN/MED/CAS)