InTouch: Indonesia

The Government has introduced a regulation intended to secure national economic stability during the COVID-19 pandemic via policy changes in the areas of taxation, government spending and financing.

Many of the law changes mirror the tax law changes envisaged by the Omnibus Tax Bill that was previously proposed and is currently being discussed in Parliament. For example, the measures include the local taxation of e-commerce through subjecting supplies made by 'foreign e-commerce players' to value added tax (VAT), and a new 'electronic transaction tax' (ETT) that will be applicable to any foreign 'over the top' (OTT) companies, including e-commerce businesses. However, detailed implementing regulations are awaited.

Value added tax / luxury goods sales tax incentives in response to COVID-19

The COVID-19 pandemic has been declared as a national disaster that has impacted the economic stability and productivity of certain sectors in Indonesia. The Government has deemed it necessary to provide relief to those operating in these sectors. In light of this, the Minister of Finance (MoF) has issued several regulations to provide the following Value added tax / luxury goods sales tax (VAT/LST) facilities:

1. Taxpayers in certain industries will automatically be considered as low-risk and will be provided with a preliminary VAT refund facility (normally these types of taxpayers have to apply to be considered low risk for this purpose) if the refund amount requested is a maximum IDR 5 billion (approx. USD 330,000). This facility is available for VAT returns (including amendments) for the fiscal period April to September 2020 that are submitted by 31 October 2020 at the latest. Please refer to TaxFlash No. 18/2020 for further details.
2.  VAT incentives will be provided to government agencies, hospitals, or other parties that have been appointed by the previous parties to assist in the handling of the COVID-19 pandemic on the import or domestic purchase of certain taxable goods and the utilisation of certain taxable services from local or overseas providers that are considered necessary in handling the COVID-19 pandemic. This facility is applicable from April until September 2020 in the form of:
   1. Import VAT not being collected;
   2. VAT on domestic deliveries of taxable goods and services (including free gifts) being borne by the government;
   3. VAT on the utilisation of taxable services from overseas providers being borne by the government. Please refer to TaxFlash No. 11/2020 for further details.
3. VAT/LST is not collected on the delivery of disinfectants, masks, personal protective equipment, thermo guns, and/or other items for the purpose of handling COVID-19 to be consumed in Bonded Zones. Please refer to TaxFlash No. 14/2020 for further details.
4. VAT/LST incentives/relaxation is also provided to taxpayers that have an Import Facility for Export Purposes (Kemudahan Impor Tujuan Ekspor/KITE). This generally involves VAT/LST not being collected on certain transactions where VAT/LST normally applies. Please refer to TaxFlash No. 14/2020 for further details.
5. VAT/LST will not be collected on the importation of the following goods from overseas or from Bonded Logistics Centers:
   1. Hand sanitiser and disinfectant products;
   2. Laboratory test kits and reagents (such as Rapid tests, PCR tests);
   3. Media transfer virus (such as processed culture media for swab tests);
   4. Medicines and vitamins;
   5. Medical equipment (such as thermometers, ventilators);
   6. Personal protective equipment (such as masks, protective clothes gloves).

This facility is valid from 17 April 2020 until the end of the prevention period of the COVID-19 pandemic as referred to by the National Disaster Management Authority. Please refer to TaxFlash No. 15/2020 for further details.

Tax on e-commerce

On 31 March 2020, the government issued Government Regulation in lieu of Law No.1 Year 2020 (Perppu-1) which includes certain provisions pertaining to taxation of e-commerce.

Some of the proposed provisions on digital economy tax which were previously included in the Omnibus Tax Bill have been included in Perppu-1. Perppu-1 will require electronic trading (“e-commerce”) business to fulfil the following tax obligations:

1. VAT
   
   The utilisation of foreign intangible goods or services in Indonesia’s customs area through an e-commerce system will be subject to Indonesian VAT and follow the prevailing provisions in the VAT Law.
   
   VAT collection, payment, and reporting are to be conducted by foreign sellers, foreign service providers, or in the foreign e-commerce marketplace (collectively referred to as “foreign e-commerce players”) and/or in the domestic marketplace, as appointed by the MoF. The collection, payment, and reporting mechanism will be further governed by the MoF.
   
   The ‘marketplace’ is defined as business players providing electronic communication platforms to be used in e-commerce, while ‘foreign sellers’ or ‘service providers’ are defined as individuals or companies residing or domiciled outside Indonesia which carry out transactions with domestic parties in Indonesia.
2.  Income Tax or Electronic Transaction Tax
   
   Foreign e-commerce players with a “significant economic presence” in Indonesia can be deemed as having a Permanent Establishment (PE) in Indonesia. If a PE cannot be deemed under the existing rules of an applicable tax treaty, affected e-commerce players will be subject to an Electronic Transaction Tax (ETT). ETT will be imposed on direct sales or sales through the marketplace.
   
   Details on the tax rate, tax base, and calculation method will be governed in a Government Regulation, while the payment and reporting mechanism will be governed by the MoF.

The “significant economic presence” PE will be determined based on the following factors:

• the consolidated gross turnover of group businesses;
• revenue from the Indonesian market; or
• number of active users

within certain thresholds that will be governed by the MoF.

Foreign e-commerce players can appoint a representative in Indonesia to fulfil its tax obligations based on the MoF regulation.

Foreign e-commerce players that do not fulfil the tax obligation will be subject to an administrative penalty based on the existing General Tax Provision Law. On top of that, their access to the Indonesian market will be disconnected by the Ministry of Communication and Informatics based on a request from the MoF if they do not fulfil their tax obligation (after the deadline as stated in a warning letter).

For more information, please contact Ali Widodo, Tax Reporting and Strategy leader - PwC Indonesia.

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