Digital Taxation
In recent years, digital taxation has been a hot discussion topic in many countries, including Indonesia. In Europe, tax authorities have questioned why ordinary people find it difficult to avoid taxes, while digital giants freely do so. In fact, fintech giants such as Amazon, Facebook, Uber, eBay, and Google have employed thousands of experts to find legal loopholes to avoid or reduce tax payment (The Guardian, 3/2/2019).
The digital tax problem was discussed during the G-20 ministerial meeting in Fukuoka, Japan, recently. One of the agreements during the meeting was to draft a digital tax initiative. It is expected that by 2020, the global digital tax can be introduced.
If it can be implemented next year, digital companies will bear a higher burden than before. British Finance Minister Philip Hammond and French Finance Minister Bruno Le Maire are the most vocal proponents of proposals to tax big tech companies across countries.
They are considered part of a big wave that is critical of the digital industry. Since last year, The Economist reviewed the symptoms of techlash or the increasing pressure from regulators and the public on the practice of giant fintech companies.
In the United States, home to almost all digital giants, the Federal Trade Commission (FTC) is investigating alleged monopolies by Amazon and Facebook, while Apple is accused of “killing” the competition and is under investigation of the Justice Department.
Global coordination
The critical attitude toward the digital giant is increasing but it will not be easy to tax them because the lack of global coordination. Regarding the G-20 proposal, US Treasury Secretary Steven Mnuchin looks skeptical, especially regarding the attitude of Britain and France because their moves have the potential to reduce the US’ tax revenues.
It seems that it will take a few more steps before this tax policy on digital companies can be globally implemented, as is the case with the issue of the Automatic Exchange of Information (AEOI).
This year\'s G-20 meeting realizes that the global economy is not too exciting. Although it is relatively stable and there are few prospects for improvement in the next year. The cloud of uncertainties is still so thick.
Although one of the most important global issues, namely the trade payment imbalance, especially between China and the US, has diminished, the conflicts between them continue.
In point 11, the meeting agreed to improve coordination in the digital taxation system.
As stated in 14 points of the joint statement made during the G-20 meeting, the global economy requires intensive policy coordination. In point 11, the meeting agreed to improve coordination in the digital taxation system.
However, controversy still occurs. Mahir A Desai, a financial expert at Harvard Business School, called the idea of applying taxes to digital giants initiated by Britain and France as populist-oriented policies and becoming part of a nationalistic industry strategy (Financial Times, 3/11/2018). According to him, the obsession to increase taxes (including from digital giants) in the midst of sluggish economy, as it is now, is not reasonable.
This is pro-cycle, which has the potential to hamper global recovery. While the addition of the tax burden on digital giants is also considered the opposite of the spirit to develop it.
President Emmanuel Macron, some time ago, declared France a global digital sector base. The implementation of the digital tax policy is, therefore, considered counterproductive. This dilemma applies to all places, including Indonesia.
Last year, Indonesia’s finance minister issued Regulation No. 210 / PMK.010 / 2018 concerning the tax treatment of trade transactions through electronic systems. However, this regulation was immediately withdrawn after polemic emerged. The regulation was considered an unpopular policy that is considered to affect the growth of the digital industry in in Indonesia.
Regarding the tax potential of digital giants, the Indonesian government has issued a regulation to force them to have legal entities in Indonesia as stipulated in PMK No.35 / PMK.03 / 2019 concerning Permanent Business Entities. Through this rule, all foreign business units operating in Indonesia must comply with Indonesian law, including in the taxation sector, which is indicated by the requirement imposed on them to have a tax identification number (NPWP).
This problem was discussed in the G-20 forum and it will be followed up.
However, this policy is still based on conventional taxation rules. In fact, the digital business no longer recognizes physical jurisdiction because of its cross-country operations. This problem was discussed in the G-20 forum and it will be followed up.
The agreement was based on a proposal that had long been prepared by a group of developed countries (OECD). In principle, developing an inclusive framework on Base Erosion and Profit Shifting (BEPS) or cross-country tax rules that allows business entities to avoid high tax burdens by seeking tax asylum.
For Europeans, this practice is troubling because many digital giants are reaping profits from large countries, such as France and the United Kingdom, but are reporting tax returns in tax haven countries, such as Ireland and Luxembourg. Therefore, the principle of physical jurisdiction is no longer relevant.
There are two pillars proposed in the G-20 meeting. First, to apply a global minimum tax rate so that there will no more tax have countries. The second is the right to a company even if it does not have a physical presence in that country.
If this international tax regime is implemented, we are among those who can benefit from it. In Indonesia, with 260 million people, of course, digital-based transactions of goods and services are very large. Moreover, if the use of data is considered as the main driving force of digital business. If this activities-based tax is applied, the physical presence is no longer a problem.
There is an uphill task to reach at the technical policy, but the basic principle has been agreed upon. This tax issue, Adam Smith once reminded, the first and foremost corporate social responsibility is paying taxes, because, tax is the only certainty out of so much uncertainty. No exception with digital-based businesses, fair tax is a necessity.
A PRASETYANTOKO, Lecturer at Atma Jaya Catholic University Jakarta