Amazon, Google face tax test as Indonesia reins in e-comm

Bloomberg

Traditional members of Indonesia’s Baduy tribe shun footwear and live in woven bamboo houses without electricity, harvesting honey from natural beehives and weaving intricate traditional fabrics by hand. Some younger members then sell the stuff on Instagram.
“My wife weaves the fabric, while the honey bottles are supplied by friends,” said Danif, 27, who goes outside the tribal area to recharge his smartphone at
a kiosk for 2,000 rupiah (14 cents). Some Baduy people, particularly those from the outer part of the tribal area, are more open to the outside world now and sell their products online,
he said.
Whatever Danif’s business says about the youth of today, his embrace of online marketing speaks volumes about Indonesia’s booming e-commerce industry. The nation’s internet-based retail market expanded 80% last year, driven by a flood of imported goods, and the government is determined to try to control the millions of sales and get its share of tax. It’s a challenge many developing countries are trying to solve as cheap smartphones and a proliferation of courier companies make a world of goods available to increasingly affluent populations.
Indonesia is drafting a tax bill that will force local e-commerce startups and digital giants such as Google, Amazon and Netflix to collect and pay value-added tax. The bill, expected to be passed into law next year, will also set a legal basis for the government to impose income tax based on a company’s economic presence in Indonesia.
“There should be no dispute regarding the new VAT rule as companies abroad can just charge the tax to their customers and deposit it to us,” said Robert Pakpahan, tax director general at the Finance Ministry. The new rules will divide tax collection between a company’s headquarters and countries where consumption occurs, he said.
In August, Google announced that Google Ads accounts with billing addresses in Indonesia will be subject to 10% VAT starting in October to “comply with local tax regulations.”
Netflix declined to comment on the government plans, while Amazon didn’t respond to requests for comment.
Like most developing nations, Indonesia’s retail market was ripe for disruption, with trade largely carried out by small family stores strung out over some 6,000 inhabited islands with poor infrastructure on one side and a burgeoning smartphone-toting middle class, hungry for goods on the other.
Mobile subscriptions last year reached a staggering 133% of the population, according to official data — implying more than one phone for each of the nation’s 260 million population. By next year, almost a third of the country will be categorised as middle class, a group that accounts for over half of household spending.
That’s driving a surge in e-commerce, with the value of transactions soaring 80% to 146 trillion rupiah ($10.3 billion) last year, according to data from 14 players in the sector compiled by Bank Indonesia.