Indonesia will impose a 10% value-added tax (VAT) on global technology companies, including Amazon, Netflix, Spotify, and Google, as the government looks to boost tax revenue after the impact of the COVID-19 crisis dented the nation’s finances.
The tax office announced on Tuesday that Amazon Web Services, Netflix, Spotify, Google Asia Pacific, Google Ireland, and Google LLC will need to pay a 10% VAT on all digital products and services sold in Indonesia, the largest economy in Southeast Asia, starting on August 1.
The new tax regulation will see global companies that sell digital products and services worth more than IDR 600 million (USD 41.6 million) annually, or which generate yearly traffic of more than 12,000 users, subject to a 10% tax.
Indonesian Finance Minister Sri Mulyani Indrawati has said that imposing a VAT on internet goods will ensure the government stays on top of people’s consumption patterns as they stay at home during a lockdown, Reuters reported. Indrawati noted the demand for digital items has risen, but consumers are buying fewer physical goods.
Indonesia’s digital economy is expected to reach USD 130 million by 2025, according to a study by Google, Temasek Holdings, and Bain & Company.
Fajry Akbar, a tax analyst from the Centre of Indonesia Taxation Analysis (CITA) said that Indonesia has the right to impose the VAT on foreign digital products and services sold in the country. However, he considers the timing of the policy to be unwise when the economy is in a difficult period and consumers have less purchasing power.
As the amount of tax revenue from each digital company will differ, Akbar projected that the VAT tax could generate up to IDR 500 billion (USD 34.69 million) per year, which is only a small portion of Indonesia’s tax revenue target of IDR 1,642 trillion (USD 113 billion) this year.
The enforcement of the VAT for these digital products and services will likely raise the cost for customers.
Responding to the announcement, a Netflix spokesperson said the company respects the rules on VAT in every country in which it operates.
“We have already reached out to the Indonesian authorities and await further details on implementation from them,” Netflix’s spokesperson told KrASIA.
The national tax office is likely to announce further companies, including video conference provider Zoom, which has been mentioned previously in discussions around a VAT, Nikkei Asian Review reported.