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Technology

Indonesia tells Google, Amazon and Netflix to collect 10% VAT

Government seeks more revenue to boost finances hit by pandemic response

Indonesia's tax office says that from Aug. 1, Amazon Web Services, Google, Netflix and Spotify must collect a 10% VAT on digital products and services sold in the country.    © Reuters

JAKARTA -- Indonesia will impose a value-added tax on global technology companies doing business in the Southeast Asian country as the government looks for extra tax revenue to boost state finances depleted in battling the economic effects of the COVID-19 pandemic.

The national tax office announced Tuesday that from Aug.1, Amazon Web Services, Google Asia Pacific, Google Ireland, Google LLC, Netflix and Spotify will need to collect a 10% VAT on all digital products and services sold in the region's largest economy.

The move comes as Indonesia looks for a way to ease increasing financial pressure. The archipelago -- the region's coronavirus hot spot with the highest number of cases and deaths -- is expecting a 13% drop in revenue this year, though plans to spend 695.2 trillion rupiah ($49.6 billion) in stimulus to boost the economy. Lower revenue and higher spending are set to plunge Indonesia into a budget deficit of 1 quadrillion rupiah, or 6.34% of GDP.

The new tax rule stipulates that foreign companies that sell digital products and services worth more than 600 million rupiah annually, or which generate yearly traffic of more than 12,000 users, are subject to the 10% levy.

The tax office is likely to announce further companies subject to the rule before the Aug. 1 date when companies must begin collecting the tax. Although not included in the announcement, popular virtual meeting service Zoom has previously been mentioned in relation to the new rule.

Indonesia boasts the biggest digital economy in Southeast Asia, with internet-related commerce expected to amount to $133 billion in 2025, compared with $40 billion in 2019, according to a research by Google, Temasek Holdings and Bain & Company.

The pandemic has undoubtedly accelerated the growth, with people increasingly using services such as Netflix as large scale social restrictions have forced them to stay indoors.

"With COVID-19, there is a huge movement in electronic transactions," Sri Mulyani Indrawati, the country's finance minister, said back in April when the new rule was being discussed. "To protect the government tax base, we will expand the tax base to [digital] platforms... that are not based in Indonesia."

"We were never able to tax the companies that are not in Indonesia even though they have large economic activities... [But with the new rules] if they have a significant economic presence, like Netflix and Zoom that are used by everyone, they can still be the subject of our taxes," she said.

The announcement by the tax authorities came on the same day that state-owned Telekomunikasi Indonesia, the country's largest telecommunications operator, said it is removing its ban on Netflix. The company had blocked access to the popular streaming service since 2016, citing the government's policy against nudity and violent content.

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