Regulation Causes Problems for MSMEs

The new regulation on e-commerce will cause problems for micro, small and medium businesses. Without care, the policy could kill industries that have grown rapidly in recent years.

KOMPAS/ALIF ICHWAN

Trade Minister Agus Suparmanto gives a speech at the 2019 Indonesia E-Commerce Forum in Jakarta, on Monday (9/12/2019). At the forum the minister also launched the 2019 National Online Shopping Day (Harbolnas).

JAKARTA, KOMPAS -- Government Regulation (PP) No. 80/2019 concerning trade through the electronic system (e-commerce) is intended to create equality between online and offline businesses. However, a number of provisions in the regulations that have come into force since they were promulgated on Nov. 25 could actually create difficulties for micro, small and medium enterprises or MSMEs, and have the potential to hamper the development of online trade, or e-commerce.

Businesses referred to in the regulation include every individual or business entity, in the form of a legal entity or not a legal entity, as well as domestic and foreign players.

Article 11 in PP No. 80/2019, for example, requires every online business to have a business permit, technical permit, company registration certificate, taxpayer address number, business code of ethics and product standardization. In another article, e-commerce businesses are required to prioritize the use of Indonesian high-level domain names (.id). Business operators are also required to help government programs to prioritize the trade of domestic goods and services.

Businesses are also worried that they will be chased by tax officers, while their businesses have not yet made a profit

Chairperson of the Indonesian E-commerce Association (idEA) Ignatius Untung, in Jakarta on Monday (9/12/2019), said that his group accommodated the concerns of e-commerce players, especially MSMEs, regarding the regulation. They are concerned that the provisions on mandatory registration and business permits are not followed up with an ease of obtaining a permit.

Businesses are also worried that they will be chased by tax officers, while their businesses have not yet made a profit. Provisions regarding the use of domains are also said to add new costs.

KOMPAS/PRIYOMBODO

Workers produce clothing made from batik cloth at the micro small and medium enterprise (SME) Dewi Sambi in Larangan, Tangerang city, Banten, on Saturday (14/9/2019). Dewi Sambi is capable of producing up to 1,000 pieces of various types of batik clothing, which is sold to the Singapore and Malaysia markets.

Not in line

Researcher at the Center of Innovation and Digital Economy of the Institute for Development of Economics and Finance (Indef), Nailul Huda, believes that the government is now intensively creating an ecosystem that is more conducive to starting businesses. However, the provisions of PP 80/2019 have the potential to increase the burden on entrepreneurs who have just started their businesses on digital platforms. In fact, this sector has grown steadily in the last few years.

The gross value of selling goods through e-commerce platforms in Indonesia, according to Google and Temasek research in "e-Conomy SEA 2019", reached US$20.9 billion in 2019. That figure grew rapidly compared to 2015, which was $1.7 billion. In 2025, this figure is projected to reach $82 billion.

Responses from a number of businesses toward the regulation were similar. Vice president of corporate communication at Tokopedia, Nuraini Razak, said she expected the government to reconsider the implementation of PP 80/2019 because there were elements that were not in line with the government\'s vision of improving ease of doing business and the growth of new MSMEs.

Requiring small businesses to have a business permit will be a challenge.

According to Bukalapak corporate communication head Intan Wibisono, the provisions on business licenses need to be reconsidered. "Requiring small businesses to have a business permit will be a challenge," he said.

Previously, Trade Ministry secretary general Oke Nurwan said that PP 80/2019 was aimed at making electronic systems-based trade more organized. "This regulation will ensure equality between offline and online [business players)," he said.

One form of equality is the matter of prioritizing domestic products. Physical retailers at shopping centers and modern stores, for example, are required to provide domestically produced goods amounting to at least 80 percent of stock.

Separately, Cooperatives and Small and Medium Enterprises Minister Teten Masduki stated there needed to be a transition period for the implementation of PP 80/2019. This is needed so that SMEs can adapt to all the requirements. "This PP has already been issued. As a consequence, a transition period is needed so that MSMEs are not beaten down and the people\'s economy is not disrupted," he said.

KOMPAS/ALIF ICHWAN

The 2019 Indonesian E-Commerce Forum presents (from left to right) Trade Ministry Director General of Domestic Trade Suhanto, deputy for the coordination of creative economy, entrepreneurship and competitiveness of cooperatives and small and medium enterprises at the Office of the Coordinating Economic Minister Rudi Salahudin, Communications and Information Ministry Director General for Informatics Applications Semuel Abrijani Pangerapan and moderator M Rosihan. Previously at the forum Trade Minister Agus Suparmanto launched the 2019 National Online Shopping Day (Harbolnas).

Combined

In a meeting at the Presidential Office in Jakarta yesterday, President Joko Widodo mobilized his assistants to prioritize MSMEs, which number more than 64 million in the national economy. The MSME empowerment program is regarded as lacking centralization and scattered in 18 ministries and state institutions.

Based on data from the Cooperatives and Small and Medium Enterprises Ministry, the total number of MSMEs in Indonesia currently amounts to more than 64 million, covering 63 million micro business units, 783,132 small business units and 60,702 medium businesses.

The government is aiming for a number of improvements in the next five years. The contribution of MSME exports to national exports, for example, is targeted to increase from 14.37 percent in 2018 to 30.2 percent in 2024. Meanwhile the contribution of MSMEs to gross domestic product is expected to increase from 60.34 percent in 2018 to 60.5 percent in 2024 and the national entrepreneurship ratio is targeted to increase from 3.4 percent in 2018 to 4 percent in 2024.