Jakarta Post reports that global tech giants like Apple, TikTok, Facebook, and Disney will start collecting a 10% value-added tax on digital services and products they sell to Indonesians on the order of the Indonesian Directorate General of Taxes (DJP). Reuters earlier reported that Spotify and Netflix are in line for levying VAT and started including it for their services starting July and now others are following suit.
The tax is seen as a way for Indonesia to grow under financial pressure and to help pay the cost of the economic damage caused by the COVID-19 pandemic. The country has South East Asia’s highest number of cases and deaths from the pandemic and projects around a 13% drop in revenue this year.
DJP described its move as the “first wave” of activity involving foreign companies affected by the new tax. The tax collection started on July 1st with companies like Netflix, Spotify, and Google, but now have 10 more foreign tech-giants also agreeing to pay the tax. Facebook also stated that the company would comply with the new VAT rule.
“In Indonesia, we will start collecting VAT as of September 1, 2020, as required under Indonesia regulations”Facebook spokeswoman
Indonesia brags about it being the biggest digital economy in Southeast Asia, with e-commerce expected to triple to $ 133 billion in 2025, compared to $ 40 billion in 2019, according to research by Google and Temasek Holdings and Bain & Co.
Though many Apple services are considerably cheaper in Asia, the increase in price due to the VAT is not going to affect the user base, because eventually, all foreign digital services are also going to be affected in the same manner. Also, the pandemic has accelerated the industry’s growth, with people increasingly using digital services amid lockdowns that have forced them to spend hours indoors.
Under the rules, non-resident foreign companies that sell digital products and services worth at least $ 41,000 a year or which generate traffic from at least 12,000 users, must pay the 10% VAT. The VAT rules aim to create a level playing field between foreign and local companies and also between conventional and digital businesses.