Earlier this year, the Indonesian Ministry of Finance announced that it was cancelling its plans to go ahead with levying new tax regulations on companies involved in Indonesia’s e-commerce sector. The regulation that was due to come into effect on 1st April 2019 was regarded as potentially stifling Indonesia’s burgeoning e-commerce industry, specifically for MSMEs, and thus its revoking has been widely welcomed. However, the Jokowi government is keen to increase tax revenues in the country and e-commerce will continue to be on the radar as the sector grows and becomes more robust. The Ministry of Finance also announced that more preparation was needed before the regulations are implemented, so online shop owners need to be prepared for the futures should this regulation come into effect.
Tax Regulations for E-commerce Companies in Indonesia
The new e-commerce tax regulation was widely perceived as introducing a new tax on e-commerce transactions in Indonesia, however this was not that case; rather the regulation was designed to clarify already applicable taxes. Therefore, it is important to be aware of what taxes are applicable to you and your online business in Indonesia to make sure that you are factoring taxes into the calculation of your online store’s performance. Companies with a turnover of at least 4.8 billion rupiah (US$340,000) are required to charge customers VAT (value added tax), while online business classified as small and medium enterprises (SMEs) must pay 0.5 percent income tax on turnover or 25% corporate tax for larger enterprises.
What is Regulation PMK 210/2018?
The new features of the tax regulation related to strengthening the responsibility placed on online marketplaces to ensure tax compliance. The regulations required online marketplaces to report details of each seller’s turnover, meaning that all online sellers would need to register for a tax-payer number (NPWP) thereby clarifying the income tax rates to be paid by online sellers. The regulation was also meant to apply to all e-commerce transactions made in Indonesia, including those made through online retailers, social media, or classified advertisements but this was later backtracked as a more established tracking infrastructure would need to be in place before this could be the case.
The Indonesian government decided against going ahead with the regulation as Indonesia’s e-commerce sector is made up of millions of micro, small & medium-sized entrepreneurs selling goods through online platforms that do not pay VAT and income tax as many of these e-commerce merchants are part of the informal sector and therefore have no tax identification number.
As Indonesia’s e-commerce industry continues to strengthen with spending expected to reach $45 billion USD in sales by 2025, it is likely that this regulation will be implemented in the future following more preparation and the issuing of clearer implementation guidelines. President Jokowi has made it clear that he wants to support Indonesia’s 59 million SMEs and has launched an ambitious program to bring them online over the coming years. As the program progresses with a target of bringing 8 million SMEs online every year, this is laying the foundations for a more robust digital economy that is better prepared to take on the proposed regulations related to e-commerce transactions.
As an online shop owner, it is important to note that this regulation in its current form specifically places the burden of reporting on e-commerce marketplace platforms as opposed to individual sellers. However, the biggest platforms will likely have to start obligating sellers to have an NPWP number to continue to access their platform for sales or to register. Getting an NPWP number is easy and can normally be done within one day at your local tax office. It is also important for the health of your online business to keep track of your spending, profit, loss and applicable taxes through basic bookkeeping which could prove useful in the future as your business grows and tax regulations become applicable to your online shop.
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