Is the Indonesian Government Hurting Or Helping the E-Commerce Industry?

The debate in Indonesia about the upcoming government regulations for the e-commerce industry is still ongoing. While the regulations are now official, they won’t be enacted until the ministry regulation drafts (RPM) ¹ are specified and finalized.

Those regulations – to be fully enacted in 2015 – have the potential to really complicate and hinder the e-commerce industry in Indonesia. The e-commerce players here, represented by the Indonesian e-commerce association (Idea), voiced their concerns to the government at a public discussion held a couple of days ago.

Kompas did a good job yesterday in summarizing the big points of discussion during that talk. Here are four of them:

1. Where are the incentives?

If the government wants to support the e-commerce industry, rather than creating further regulations, the industry will be better off if given incentives. At least the government should also provide the latter.

East Ventures co-founder Willson Cuaca ² explained that the Singapore government is more focused on building the infrastructure rather than compiling regulations. The government gives funding incentives to help the startups as well as building the infrastructure like tens of thousands of free WiFi spots all over the country.

2. Sketchy definitions

The other concern is about the sketchy definitions laid out on the new regulations. Two definitions in the spotlight here are for “electronic transactions” and “public service.” First, there are quite a few online activities going on around the various e-commerce business models. For example, there aren’t any transactions between the buyer and seller happening inside C2C marketplace TokoBagus so, in this case the company acts only as a platform. Is TokoBagus culpable of the government’s regulations concerning the online transaction clause?

‘Idea’ demands the government clarify which processes are deemed as electronic transactions.

‘Idea’ also does not agree on the point where e-commerce players are specified as public services. Head of public policy and government relations of Google Indonesia, Shinto Nugroho, argued that e-commerce cannot be put in the same place as a hospital. He said that all the activities and processes happening inside the e-commerce trade are fully private, and everyone has freedom whether they want to shop online or not.

According to other definitions of public service mentioned on previous regulations like the UU no. 25/2009 and PP no. 96/2012, e-commerce players cannot be classified as a public service.

3. Data centers in Indonesia are more expensive

The argument from the government side is this: Indonesian e-commerce sites need to use local data centers for security purposes. if there is a violation of law due to e-commerce activities, then the government can easily investigate the matter by looking into the internet data stored inside the local data centers. The same cannot be achieved if the e-commerce players are using data centers in other countries.

Fact of the matter is, most of the e-commerce players in Indonesia use data centers in other countries because they are more affordable. Multiply Indonesia country manager Daniel Tumiwa and Biznet Network president director Adi Kusma said that the cost of local data centers here is two times more than the ones abroad.

This is where the issue of incentives arises again. The government should take a deeper look into the fate of the e-commerce industry.

There is one exception to this regulation though, and that is if the players are using tier 4 data centers, then it is okay to use foreign ones. That’s because there aren’t any tier 4 data centers yet in Indonesia.

4. Local domains

Fending off potential foreign players?