Indonesia is the latest country to question the tax arrangements of the world’s internet giants, issuing a threat to block their services if they fail to comply with local set-up requirements and pay tax.
“All have to create a permanent establishment, like the contractors for the oil sector, so they can be taxed,” stated Bambang Brodjonegoro, the finance minister, although the Jakarta Globe reported that he did not name any particular businesses.
According to Communications Ministry estimates, digital advertising was worth around $800m last year but was untaxed because of the loopholes in regulations.
A spokesman for the Ministry said that imminent new regulations would address this issue and would apply to streaming and messaging providers as well as social media websites.
Indonesia is one of the most social media-connected countries in the world. It is Facebook’s fourth-largest market target, while Jakarta is the most active city for Twitter – Jakartans account for 2.4% of all tweets worldwide.
Accordingly, major brands are looking to tap into this high level of digital social engagement while local entrepreneurs have been able to use social networks as an inexpensive platform to build their brands and do business.
But these activities could be at risk if the government carries out its threats: the Communications Ministry spokesman, Ismail Cawidu, indicated that those internet businesses that did not comply with the new regulations faced a reduction in bandwidth or, in extremis, being blocked completely.
While some of the businesses potentially affected have already set up legal entities in Indonesia, others only have representative offices.
And even those, such as Google, that do have a properly constituted business may not be immune from government scrutiny.
“Google has an office in Indonesia, but digital age transactions do not go through that office,” Communication Minister Rudiantara told Metro TV. “That is what we’re looking to straighten out,” he added.
