Local Companies Push for Equal Taxation

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Efforts to tax foreign digital technology companies are constrained by limited regulations. Local companies are hoping for equal taxation to level the playing field.

JAKARTA, KOMPAS — Local companies believe that existing regulations have yet to accommodate the latest developments in the digital economy, especially in taxation. Market countries, such as Indonesia, hope there will be an immediate solution for fairer and more proportional global taxation on digital economic transactions.

A number of countries and country groups are racing to implement a consensus on digital taxation next year. The consensus is hoped to resolve complex taxation issues created by the international and invisible nature of digital economic transactions, which transcends conventional time and space boundaries.
Demands of equal taxation exist for over-the-top (OTT) content and application providers and e-trade companies. Indonesia E-Commerce Association (idEA) chairman Ignasius Untung said in Jakarta on Monday (8/7/2019) that many foreign OTT providers had never been taxed due to their digital transactions and the companies not being located in Indonesia, despite having local customers.
“[Foreign OTT providers] can reap huge profits as they do not have to pay compliance costs, including taxes, in line with Indonesia’s regulations. They do not recruit salespeople and all advertisements and product offers are distributed digitally,” Ignasius said.
With more than 170 million internet users, Indonesia is seen as a major market for digital technology products. A 2018 Google-Temasek report showed that the value of Indonesia’s internet-based economy, based on its gross merchandise volume (GMV), was US$27 billion, a 49-percent increase compared to 2015 and the highest in ASEAN. With such a position, many are hoping that Indonesia can make a better use of digital economy development.
In a meeting of G-20 finance chiefs in Japan last month, a majority of countries agreed to a fairer taxation mechanism. Digital giants are seen to have gone around taxation regulations for years by sending their revenues to tax havens in order to pay low taxes in countries where they operate.
Cooperation
Finance Minister Sri Mulyani Indrawati said that G-20 member countries were compiling digital taxation schemes, under which companies’ taxes would be based on their economic activities instead of their physical presence. Although no decision on the new scheme will be made until next year, the government has been estimating the tax liabilities of digital companies that profit from operating in Indonesia.
Potential taxes for multinational companies will be sought after international cooperation under the Automatic Exchange of Information (AEoI) program to obtain economic transaction data.
AFP/GETTY IMAGES NORTH AMERICA/JUSTIN SULLIVAN
A man is silhouetted against the Facebook logo at the Facebook F8 Developer Conference on 30 April 2019 in San Jose, California.
Last year, the Taxation Directorate General sent financial data/information to 54 countries and received financial data/information from 66 countries. This year, Indonesia will send data to 81 countries and receive data from 94 countries.
Center for Indonesia Taxation Analysis (CITA) executive director Yustinus Prastowo said that regional or multilateral cooperation would be required for taxation data exchange related to the transactions of international companies. The government can use data exchange to obtain potential income taxes (PPh).
Many see that it will be difficult for the government to obtain potential taxes from international digital technology companies fairly and optimally using existing regulations. House of Representatives Commission X member Mukhamad Misbakhun said that existing regulations had yet to accommodate the latest developments in the digital economy, especially on tax objects and types of transactions. Therefore, new regulations are needed.
Currently, digital economy activities in Indonesia are taxed through the income tax scheme. However, income tax can only be imposed if the companies are permanent business entities or have subsidiaries in Indonesia.
Gadjah Mada University (UGM) tax law lecturer Adrianto Dwi Nugroho said the business process of digital technology companies was highly complex and expansive, and that general income tax regulation alone would not be enough. A new type of tax, not based on income tax or value added tax regulations, must therefore be created.
Existing digital service proposals, such as those in the United Kingdom or the European Union, only combine the concepts and principles of income tax and value added tax. Such proposals will only put unfair burden on taxpayers based on their use of digital economy developments.
AFP/LIONEL BONAVENTURE
A montage of three file photos shows (from top): the Google logo displayed on a screen and reflected on a tablet on 29 April 2018 in Paris, France; the Twitter logo and icons displayed on a computer screen on 23 March 2018 in Beijing, China; and the Facebook logo displayed on a screen and reflected on a tablet on 29 April 2018 in Paris, France.
The Taxation Directorate General’s director of international taxation Poltak Maruli John Liberty Hutagaol said the government would consider various aspects in compiling a digital taxation scheme.
“The digital economy is filled not only by international digital giants but also micro, small and medium enterprises. Taxation must not disrupt the business climate and hurt consumers,” he said. (KRN/MED/JUD)

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