VAT and Electronic Transaction Tax for Overseas Digital Goods and Services

With Indonesia’s youth population amounting to 64,19 million where the age is maximum of 30 and filing nearly a quarter of the nation’s population, it is no wonder that the use of smartphones along with its internet access is rapidly increasing. This contributes heavily to the increasement of Southeast Asia’s youthful population that is also where exceeding $100 billion in 2019 and forecasted tripling by 2025. With all this increasement of youth and amidst the corona pandemic where most people are staying at home, the smart phone is most popular and efficient to use that it is developing as the world’s fastest growing grounds for online commerce.
Earlier this June, Zoom reported that its earning has soared because its video meeting service became a popular way to not only work but also to socialize, owing to the covid19 disease. The founder said the covid 19 disease has driven a higher demand for distributed face to face interactions and collaborations using zoom.
As of 1 July 2020, as an attempt to boost the state revenue, the Ministry of Finance will expose 10% VAT on imported digital goods and services of Overseas merchants, foreign service providers, and/or foreign electronic systems trading organizers (PPMSE). This applies to all online services including video and music subscriptions. All these digital goods and services will receive the same treatment as national conventional goods and services that are already subjected to VAT including domestic digital products and services. However, the challenge is whether the government can not only implement the rules but also the real implementation on taxing these imported digital services and goods as they are not limited by space and time. For this the government has made the right and proper rules namely GR 12/2020 for imposing VAT.
Although the VAT imposed will so much probably burden either the cost of each digital company or its end users, overseas digital goods and services companies have the right to know and understand that there may be another tax imposed from the government. Based on Law Number 2/2020 states that:
“Overseas merchants, foreign service providers, and/or foreign electronic systems trading organizers (PPMSE) who meet significant economic presence requirements may be treated as a permanent establishment and subject to income tax. In the event that the establishment as a form of business can not be done due to the application of agreements with other Governments in the framework of the avoidance of double taxation and prevention of tax evasion, foreign merchants, foreign service providers, and/or the trade provider through electronic systems (PPMSE) that meet the requirements of significant economic presence, may be taxed electronic transactions”.
In short, based on this GR, PPMSEs that do not fall into the category of a permanent establishment based on the tax treaty with Indonesia, may be taxed with electronic transactions tax. This new tax, which last year made a huge conflict between France and the US, will need huge socialization as well as post negotiations between the countries that may be exposed of this new tax.





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