Digital Tax is Optimized, Local Marketplaces are Involved

The government has appointed local marketplaces (lokapasar) as digital trade tax collectors. Taxes from this sector have the potential to rise significantly in 2023.

KOMPAS/PRIYOMBODO (PRI)

Activities at the JD.ID warehouse in the Marunda warehouse area, Bekasi, West Java, Friday (10/12/2021).

JAKARTA, KOMPAS — The government will optimize tax collection from digital trade to boost tax revenue amid this year's economic slowdown. The coverage of the platform providers appointed as tax collectors is expanded to include not only foreign platforms such as those that have been in force, but also the domestic marketers.

The expansion of the collectors of value added tax through trade using the electronic system (PPN PMSE) is regulated in Government Regulation (PP) No. 44 of 2022 issued in early December 2022. The regulation is a derivative regulation from Law No. 7 of 2021 on the harmonization of tax regulations (HPP Law).

Article 5 of the regulation stipulates two categories of parties that can be appointed to become VAT collectors for transactions of digital goods and services. First, the platform of goods and service providers domiciled abroad, such as Netflix and Spotify. Second, the trading platforms in Indonesia, meaning local lokapasar, such as Shopee and Tokopedia.

Also read:

> Collection of “Enjoyment” Tax Faces Uncertainty

> Tax Revenue Set Relatively High

Before PP No. 44/2022 was issued, the parties that could be appointed by the government to collect and deposit the VAT were companies providing goods and services from foreign countries.

Bonarsius Sipayung, head of the VAT Regulations for Trade, Services and Other Indirect Taxes Sub-Directorate in the Tax Directorate General of the Finance Ministry, said that the appointment of platforms as VAT collectors was a pretty effective breakthrough to encourage taxation for digital transactions.

To boost tax income, digital transaction extensification would continue to be optimized. One step is by expanding the subject which can be appointed as collectors of VAT through trade using the electronic system

"We have begun to appoint local market places that facilitate the trade of government goods and services or procurement. This year, domestic (private) marketplaces will also be appointed as tax collectors in stages," he said when contacted on Monday (9/1/2023).

As of January, more than 150 platform companies domiciled abroad were appointed by the government as VAT collectors. In the 2.5 years since it was first implemented in July 2022, the government has collected tax revenues of Rp 10.11 trillion (US$648.12 million) through the application of the PPN PMSE.

The PPN PMSE collection continues to increase from year to year. In 2022, the government received Rp 5.48 trillion from PPN PMSE, up from the previous realization in 2021 of Rp 3.9 trillion. Before that, in July-December 2022 when the PPN PMSE was first implemented, the realization was Rp 730 billion.

Also read: An Increase in State Revenues Indicates Economic Recovery

Bonar said that the PPN PMSE collection had the potential to rise significantly this year. Assuming a tariff of 1 percent of each digital transaction value, the potential for adding taxes through the appointment of domestic marketplaces as VAT collectors ranged from Rp 5 trillion-Rp 6 trillion.

Based on Bank Indonesia data, Indonesians’ digital transactions continue to increase. As of November 2022, electronic money transactions grew 12.84 percent to Rp 25.3 trillion. Meanwhile, digital banking transactions rose 13.88 percent to Rp 4,561.2 trillion.

"Communication with local platform companies has been carried out intensively. Now all platforms that facilitate transactions for government goods and services spending have been appointed to be tax collectors. For the general transactions that are being processed, we will apply them this year,” he said.

KOMPAS/PRIYOMBODO (PRI)

A worker looks for customer groceries at the JD.ID warehouse in the Marunda warehouse area, Bekasi, West Java, Friday (10/12/2021).

Needs clarification

Pratama-Kreston Tax Research Institute executive director Prianto Budi Saptono assessed that revenue through PPN PMSE would rise significantly with the expansion of the subjects of the tax collectors. At the same time, domestic consumption was increasing rapidly in line with improvements of the domestic economic conditions.

"First, there are more and more VAT collectors. For those that collect, deposit and report, the government just sits watching. Second, taxable objects also automatically become wider according to the HPP Law," he said.

However, the government still needs to clarify technical rules for the collection of PPN PMSE by the lokapasar domestic platforms. The reason is that PP No. 44/2022 has not regulated VAT collection in the context of online transactions conducted as merchants (traders) with the status of Taxable Entrepreneurs (PKP).

The government needs to clarify who the authorized party is to collect VAT in the case. "Who is more entitled to be a collector? Is it the e-commerce platform or the trader himself? If the traders are non-PKP, indeed it is easy, those that are automatically collecting VAT are the platforms. If it is not regulated, there might be double tax collections by merchants and platforms," said Prianto.

Without any law enforcement, this can erode the acceptance of PPN PMSE.

Taxation researcher from the Center for Indonesia Taxation Analysis (CITA), Fajry Akbar, assessed that before increasing the number of tax collectors, the government needed to strengthen implementation in the field. This was because there were still many pirated digital services, meaning odd accounts that offered the provision of digital services at low prices outside the official platform.

"Without any law enforcement, this can erode the acceptance of PPN PMSE. However, this is indeed not the realm of the Tax Directorate General alone, but it needs coordination with many parties," he said.

Nevertheless, Fajry added, the expansion of PPN PMSE collectors as regulated in PP No. 44/2022 would help boost the potential tax revenue in 2023. According to him, there would be no strong resistance from the lokapasar provider platform companies or from the public.

Moreover, VAT collection has been valid beforehand in online trading transactions through the selling price that included VAT. Thus, there was no imposition of new tax burdens on consumers through this new regulation.

"I think people have understood that now even buying crypto assets has been subject to VAT. For simpler things like this, people should understand more," he said.

The government makes VAT deposits as a mainstay to sustain tax revenue. In the 2023 State Budget, the government set a target of revenue from VAT and Sales Tax on Luxury Goods (PPnBM) of Rp 743 trillion, or 30.16 percent of the total revenue target.

This article was translated by Hyginus Hardoyo.