By Andreas Adoe
Digital economy, a term which is commonly associated with e-commerce, creates sharing economy platform by providing income opportunities for providers of goods or services to meet the prospective consumers. The activities of sharing economy vary from transportation services to house rent, construction service, music and movie streaming, online market place, as well as financial technology that accomodates peer-to-peer lending.
Taxation for digital economy is regulated in Ministry of Finance Regulation No. 210/PMK.010/2018 on Tax Treatment of Trade Transactions Through Electronic Systems (e-commerce). Further question has been made on how this regulation is implemented for Income Tax, Value Added Tax (VAT) and Local Taxes.
Sharing economy platform is usually created by digital company serving as intermediary for consumers to interact with the service providers through online websites as well as smartphone applications. This fact has created tax risk because of its unique payment methods which are mostly made globally. The challenges of tax compliance arise specifically if the platform comes from other country and this situation ecourages tax authorities to cooperate with other government agencies for exchange of information regarding individual or enterprise transactions as mentioned in OECD Report Comparative Information on OECD and Other Advances and Emerging Economies (2017) which explains Australian Tax Authority has used data of digital platform users, and Finnish Tax Authority which uses data of credit card payment or online debit to test taxpayers’ compliance on their income tax or VAT obligation in sharing economy.
The Ministry of Finance Regulation No. 210/PMK.010/2018 has actually regulated what other countries have regulated regarding exchange of information in digital economy.
Problems of tax reporting often arise if the income does not come from employment in Indonesia. This is because the service or goods providers and the consumers may be considered as business partners. The tax treatment will vary depend on its source and form of income, whether it is actually business income, rent charge, freelance income, interest payment, or investment income. Classification of income types is important in this context, because the tax treatment will depend on the type of income. Curently, the problems persist because there is no rules about taxpayer’s obligation to withhold Income Tax of Employment Income (PPh 21) from their business partners as their income is not considered employment income.
Some of the biggest source of revenue from sharing economy is from foreign digital companies who regard themselves as Representative Offices and not considered as Permanent Establishment. On the other hand, MoF Regulation No. 210/PMK.010/2018 only regulates explicitly about Permanent Establishment and not regulating about Representative Office. Though this MoF Regulation No. 210 has been revoked by the Ministry of Finance in March 2019 but we do understand that the government needs to regulate digital economy, through e-commerce, in Indonesia.
Other questions arise concerning the financial technology (fintech) company who brings together creditors and debtors, thus generating interest income or yield for capital owners. In this case, who bears the obligation to withhold the income tax of interests or yield?
There is a huge potential for individual income tax revenue in Indonesia from sharing economy activities, as seen from thousands of partners of online motorcycle taxi, locally known as gojek, and four-wheel taxi until thousands of sellers in online stores through the marketplace platform so that there is individual income tax potential that can be explored.
The potential for tax revenues from sharing economic activities is the income tax that can be imposed as Small-Medium Enterprise (SME) Income Tax if the income is classified as business income and not income from freelancers or experts such as accountants or consultants, so that it may be subject to final income tax 0.5% on the gross income based on Government Regulation No. 23 of 2018. It can be questioned whether online motorcycle taxi or online taxi drivers can be charged with SME Tax of 0.5% rate even though the Government Regulation No. 23 also limits the application of the final income tax to individuals for a maximum of 7 years.
Government Regulation PP No. 23 of 2018 regulates about the so-called “tax withholder” for final income tax of 0.5% on business activities which can also be implemented to digital platform. Though it depends on how sharing economy operates and its business model.
For foreign digital platform, there is also VAT potential revenue because based on VAT Law, since service recipient from foreign countries including individuals who are not Taxable Entrepreneur are all obliged to pay VAT from the services received. Local taxes, as in provincial taxes, could be potentially explored if the properties rented are classified as hotel services therefore it is charged with hotel tax.
There is a huge tax revenue potential in Indonesia from sharing economy. The income is no more classified as employment income which may need further regulation to classify this income and later it is necessary to decide which income tax treatment to apply for the income from sharing economy. There is undoubtedly potential of income tax revenue, VAT revenue, as well as local tax revenue from sharing economy.
If the Ministry of Finance Regulation No 210 is implemented, it may cause certain issues for foreign digital companies, especially for those who are only Representative Offices. Likewise, it is significantly important to also regulate how information is collected regarding taxpayers identification number and taxpayer’s income.
Note : This article has been published previously here as well as Kontan Daily Newspaper, 15 February 2019, additional information has been added on the article, such as the MoF Regulation No. 210/PMK.010/2018 that has been revoked by the government in 2019.Back to Articles Back to Andreas Adoe
The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.
Andreas Adoe is tax advisor based in Indonesia. He has specialized in international taxation, cross-border and domestic tax planning as well as tax law issues in both direct and indirect taxes with around 20 years of experience. He is a licensed tax consultant and tax attorney in Indonesia. He has experience as tax advisor for multinational companies, domestic companies and also has provided advice, based on tax research, on the legal issues for Indonesia’s Ministry of Finance. He regularly writes in national publication regarding Indonesia’s tax issues. He began his career at Indonesia’s Tax Authority, and later worked as tax consultant at KPMG, tax researcher at IBFD and he is also currently lecturer of tax study at the University of Indonesia as well as researcher at the University’s Tax Center. He is a graduate of the State College of Accountancy with diploma of taxation and accounting, he has a bachelor degree in accountancy from University of Indonesia and LLM degree of International Taxation from European Tax College, Tilburg University, the Netherlands.
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