JAKARTA -- Hoping to boost tax revenue, Indonesia is mulling a new regulation that will require Google, Facebook and Twitter and other foreign online service providers to obtain a "permanent establishment" status in the country.
A permanent establishment means foreign companies will need to "establish a company in Indonesia, a joint venture in Indonesia, or enter into cooperation with cellular operators," Communications and Information Minister Rudiantara told reporters on Tuesday.
The regulation will apply to companies that provide services such as messaging, voice and streaming video over the networks of telecommunication companies. Rudiantara estimated that there are about 20 major companies that fall under this category including Google, which runs the video sharing site YouTube, Facebook, the owner of messaging app WhatsApp, and microblogging service Twitter.
Many of these companies have set up representative offices in Jakarta in recent years, and some have established legal entities. But Rudiantara said they need to "increase their presence" partly because their advertisement revenues are not properly taxed. Currently, payments and settlements for ads are made in jurisdictions outside Indonesia with lower tax rates, Rudiantara said.
Rudiantara has previously told local media that companies failing to comply with the new regulations may be barred from mobile networks. Since late January, the state-owned telecommunication company has been blocking U.S.-based Netflix's video streaming service after it launched in Indonesia. But since services like YouTube and Twitter are widely used, even among government officials, it is unclear whether Indonesia would enforce similar blocks under the new regulation. It is also unclear whether setting up a local company would help generate more taxes for the Indonesian government.
Rudiantara said a general outline of the regulation is expected by early April, followed by technical details. "There will be a transition period" for the companies to comply, he added.
The fast-growing but loosely regulated digital industry is becoming an attractive source of revenue for Indonesia, which is struggling with a budget deficit and tax shortfalls. According to U.S. research firm eMarketer, Indonesia's digital advertisement spending is expected to surge from $830 million in 2015 to $4.9 billion in 2019, the fastest growth rate in Asia.
Foreign companies dominate popular online services - Indonesia is among Facebook's top five markets globally by users, and Jakarta has been recognized as the world's the most active city in terms of tweets generated.
Multinational companies such as Google and Facebook are also facing scrutiny in Europe for their low tax payments on profits. In the UK, Facebook recently set out plans to pay more corporation tax, while Google agreed to pay 130 million euros ($142 million) in back taxes. These moves may be prompting the Indonesian government to take a tougher stance towards taxing foreign tech companies.
Facebook, Google and Twitter did not immediately respond to a request for comment.
"We have to put Indonesia as competitive as possible. We have to be friendly to those investors," Rudiantara said. "But we have to protect the national interests."