Indonesia considers digital tax even without world consensus

INDONESIA may still pursue a plan to tax technology companies on the income they generate from the country even if G20 nations and the OECD cannot reach a deal on digital taxes, its finance minister said on Tuesday.

Talks to rewrite rules for cross-border taxation, including digital taxes, led by the Organisation for Economic Cooperation and Development, stalled this year, with a new deadline for an agreement extended to 2021.

Indonesia, Southeast Asia’s biggest economy, has begun collecting a 10% value-added tax (VAT) since mid-2020 on digital products and services from internet-based firms, but officials had previously said it would charge a tax on income only after a global consensus was reached.

Finance Minister Sri Mulyani Indrawati told a virtual news conference that, based on the VAT payments, the tax office could estimate how much in income digital firms derive from Indonesia.

“Of course we hope for a global taxation agreement, it would be so much better as it gives a certainty,” the minister said.

“But it does not mean we cannot collect the taxes. The difference is we will not be doing something that is based on a formula advocated by the OECD,” she said.

The European Union is also considering going ahead with a bloc-wide tax on digital services if a global deal is not reached by mid-2021.

The United States in June launched an investigation into digital services taxes being adopted or considered in several jurisdictions, including the EU and Indonesia.

Indonesia’s tax office said 16 digital companies had paid 297 bil rupiah (US$21.06 mil) in VAT as of October.

Indonesia’s digital economy is set to reach USS$44 bil in 2020 and is expected to grow to US$124 bil by 2025, according to a recent study by Google, Temasek Holdings and Bain & Company. – Dec 1, 2020

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