36 Global Companies to Collect VAT on Sales of Digital Products
As many as 36 global companies have so far been designated to collect Value Added Tax (VAT) on the sales of digital products to their Indonesian customers.
By
KARINA ISNA IRAWAN
·5 minutes read
REUTERS/CHARLES PLATIAU/FILE PHOTO
he Alibaba group logo in Paris, France May 16, 2019.
As many as 36 global companies have so far been designated to collect Value Added Tax (VAT) on the sales of digital products to their Indonesian customers. The tax revenue potential for each company could reach Rp 500 billion (US$34 million) a year.
JAKARTA, KOMPAS — As many as 36 global companies have so far been authorized to collect 10 percent Valued Added Tax (VAT) on the sales of digital goods and services to their Indonesian customers.
Eight of the foreign companies were named to collect the VAT just recently. They include Alibaba Cloud (Singapore) Pte Ltd, Git-Hub Inc, Microsoft Corporation, Microsoft Regional Sales Pte Ltd, UCWeb Singapore Pte Ltd, To The New Pte Ltd, Coda Payments Pte Ltd, and Nexmo Inc.
The director of counseling, services, and public relations at the Taxation Directorate General, Hestu Yoga Saksama, said the eight foreign companies would begin collect the VAT on digital products and services sold to their consumers in Indonesia starting 1 Nov. 2020 . The VAT rate is 10 percent of the pre-tax price.
"The VAT must also be stated on receipts or invoices issued by the sellers as proof of collection," Hestu said in a press release issued on Friday (9/10/2020).
Indonesia officially began to impose the VAT on digital products sold from abroad on Aug 1 in line with Finance Ministerial Regulation No.48/2020. A number of foreign companies that have collected the VAT from their customers in Indonesia are Facebook, Netflix, Spotify, Twitter, LinkedIn, Skype , Zoom Video Communications, Tiktok, Amazon, Apple Distribution International, and PT Shopee International Indonesia.
Foreign companies that have met the criteria but have not yet been designated as VAT collectors are expected to immediately report to the tax office.
According to Hestu, one of the criteria for foreign companies to collect VAT on digital goods and services sold to their Indonesian customers is that they must have sales of at least Rp 600 million per year or Rp. 50 million per month. Foreign companies that have met the criteria but have not yet been designated as VAT collectors are expected to immediately report to the tax office.
Research manager at the Center for Indonesia Taxation Analysis (CITA), Fajry Akbar, said that the collection of the VAT on digital goods and services was the quick solution which can be made by the government to collect taxes from global digital companies. The VAT collection will not cause disputes between the Indonesian government and the global companies or with the countries where they are domiciled.
"There will be no dispute in the VAT collection. It is different with the corporate income tax, which has raised pros and cons related to its collection. The World Trade Organization (WTO) has even recommended the collection of the VAT on digital services to support international trade,” he said. Member countries of the Organization for Economic Cooperation and Development (OECD) and the G-20 are currently formulating taxation on digital services based on their significant economic presence. A consensus on the global digital tax is expected to be reached by the end of 2020.
Kompas
The World Trade Organization (WTO) headquarters are pictured in Geneva, Switzerland, July 26, 2018. REUTERS/Denis Balibouse/File Photo
A number of countries including Indonesia plan to impose direct taxes on global digital companies. However, the imposition of the direct taxes has been hampered by various problems, including the need to sign a double tax avoidance agreement.
Potential value
The Finance Ministry has estimated the VAT revenue potential from the sales of goods and services through the digital trading platforms would reach Rp 10.4 trillion a year. The projection is based on the estimated value of the transactions of the digital goods and services in 2017 which totaled Rp 104.4 trillion. The digital goods and services include, among others, software and applications; games, videos and music; as well as social media and over-the-top (TTT) services.
Fajry said that VAT potential which can be raised from the digital trading platforms was difficult to project because many of the services were provided for free. Companies which provide free services cannot collect the VAT, which is imposed only on paid or premium services.
Based on the CITA calculation, the potential of the VAT receipts from one of the largest digital trading platforms could reach Rp 500 billion. In fact, the VAT potential could reach Rp 700 billion a year during the Covid-19 pandemic. The amount of the VAT which can be collected by the companies is different from each other because the difference in the transaction value of each platform.
According to Fajry, the potential of the VAT revenue which can be collected by the digital trading platforms is quite large, but it will not be enough to cover the 2020 State Budget deficit which is estimated to reach Rp 1.03 quadrillion or 6.37 percent of gross domestic product (GDP. "The VAT collection is not suitable if it is intended as an effort to raise taxes, but it is needed to ensure justice in business," he said.
The World Bank economist for macroeconomics, trade and investment, Jaffar Al-Rikabi, is of the opinion that efforts to increase revenue through tax reform cannot be done in a short time. Based on the experience of several countries in the world, it will take six to 10 years to increase the tax ratio.
