Indonesia will impose a 10% value-added tax on digital services provided by non-resident companies starting July 1 as the government seeks to mitigate the economic impact of the Covid-19 pandemic.
According to the new regulation, the tax applies to companies with a “significant economic presence” in the country, operating in sectors such as software, multimedia, and data.
Photo credit: Kaspars Grinvalds / 123RF
According to the finance ministry’s directorate general of taxes, digital products such as music and video streaming, apps, and games “will be treated [on a] level playing field as other local products that have been subject to VAT.”
The government said last month that it will tax companies such as US video streamer Netflix and Swedish music-streaming platform Spotify.
Indonesia’s digital economy is expected to grow to about US$150 billion by 2025, according to a report by McKinsey & Co. However, the government did not see much state revenue from the space as many digital companies do not have a legal entity in the archipelago.
Proceeds from the tax will become a critical funding source to support Indonesia’s economy amid the pandemic, the country’s tax office said. Finance Minister Sri Mulyani Indrawati previously said that digital companies have experienced sales growth during the pandemic.
Indonesia’s move comes after Singapore introduced a 7% tax for overseas digital services and Malaysia imposed a 6% tax on imported digital services from the start of this year.
Editing by Charmaine de Lazo
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