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Ecommerce

Indonesia set to tighten noose on online merchants evading tax

Online shops have boomed in Indonesia with vendors offering goods from refrigerators to condoms to the latest iPhone, often without declaring incomes.

PUBLISHED : Friday, 05 October, 2018, 9:07am
UPDATED : Friday, 05 October, 2018, 9:07am

Indonesia plans to require online merchants to own tax identification numbers starting this year, part of efforts to boost revenue and improve compliance in the fast-growing e-commerce industry.

PT Tokopedia and PT Bukalapak.com will be among e-commerce companies which will ask sellers for identification numbers, known as NPWP, as a condition to operate on their platforms, according to Robert Pakpahan, the Finance Ministry’s director general of taxes. These platforms will submit a monthly report of transactions to the government, he said.

“We want to improve tax enforcement but we don’t want to scare the startups,” Pakpahan said in an interview in Jakarta. “Instead of the startups collecting taxes, their merchants will perform self-assessment on the arrears.”

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President Joko Widodo is accelerating efforts to boost revenue to help finance billions of dollars in infrastructure projects as the economy struggles amid an emerging-market rout. Online shops have boomed in Indonesia with vendors offering goods from refrigerators to condoms to the latest iPhone, often without declaring incomes.

Online commerce sales in Indonesia will grow to as much as $65 billion in 2022 from $8 billion in 2017, McKinsey & Co. estimated. Bukalapak reported a 60 percent annual growth of its sellers in June and is signing up hundreds more mom-and-pop stores daily.

Starting in July, the government lowered the final income tax for micro, small and medium enterprises to 0.5 percent from 1 percent, and gave a transition period of as long as seven years before imposing normal rates.

Merchants on social media like Instagram might be spared for now as “the enforcement won’t be as easy,” Pakpahan said on Sept. 28.

The government is also using information from banks to catch the big tax evaders, he said. Under the Automatic Exchange of Information (AEOI) framework which was passed into law in August 2017, domestic banks share details of deposits of at least 1 billion rupiah ($66,000) with tax officials.

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“If the deposits are big enough, I will be able to get the details of the bank accounts through the AEOI and inquire about the source of the money,” Pakpahan said. “That is why data management is very important.”

The government has allocated at least 3 trillion rupiah by 2025 to develop the infrastructure needed to improve its data management.

Indonesia has also started sharing information on tax and financial accounts with its AEOI partners, including Singapore and Switzerland, since last week.

The government aims to increase the tax-to-gross domestic product ratio to 13 percent by 2020 from a goal of 11.6 percent this year. It has projected that it will only collect about 95 percent of the tax revenue target of 1,424 trillion rupiah for this year.