Indonesia to demand taxes from US tech giants

Jakarta. Indonesia’s vast population is hugely attractive to tech companies. Source: Wikimedia

Jakarta’s finance minister has said his office would examine the tax reports of the Indonesian branches of four internet firms, to check whether they had been paying the correct level of tax.

Bambang Brodjonegoro said Yahoo, Twitter, Google and Facebook would face scrutiny.

While the firms had paid income tax, they were still liable to value-added tax applicable to revenue generated from advertising in Indonesia, he added.

“We’re not afraid that they will run away from Indonesia,” Brodjonegoro said. “Look at Twitter, many of their users come from Indonesia, they’re not going to run.”

Indonesia, the world’s fourth largest country by population, is facing a sizeable revenue shortfall this financial year as commodity-related income has declined with falling fuel prices.

This week it was announced that the threshold at which individuals would start paying income tax would be raised in June. This was seen as a measure to stimulate growth although it will further hurt government coffers.

Indonesia is struggling to meet its tax-collection target of US$117 billion this financial year to fund President Joko Widodo’s large-scale infrastructure projects. The government in recent weeks has warned foreign technology firms to incorporate themselves and pay taxes that has been seen by many in the tech sector as the next major source of growth after China and India. Other US companies, including video-streaming service Netflix and taxi app Uber, have recently entered the archipelago.

Yahoo and Google have formed Indonesian limited liability companies and Twitter and Facebook have their regional offices in Indonesia.

“Revenue from ads should be part of those taxable by us. We’re doing a review,” Brodjonegoro said, adding that Jakarta was making the same demands as the British government from the online giants. “The point is we will be serious in straightening up taxes on digital economy,” he said.

The communications ministry estimated the value of digital advertising in the archipelago at about US$800 million in 2015, adding that all the profits went untaxed.

“It is ironic that at a time when the location of the future Asean innovation hub is up for grabs, any city competing to be the Asean centre might simultaneously scare away the regional headquarters of exactly the companies they will soon want to attract,” said Matthew Le Merle of Fifth Era, a Silicon Valley investment firm specialising in the emerging-market tech sector.

Twitter is popular in Indonesia and countless islands are home to the world’s fourth-largest Facebook population.

Twitter said it “will fulfill all obligations as a representative office in Indonesia” and the other companies were unavailable to comment.