IO – The latest e-commerce regulation issued by the Government does not support local startups. This is because it only imposes taxes on local e-commerce, while foreign e-commerce companies that sell goods in Indonesia are not covered by this regulation. Furthermore, this regulation will also affect local online micro, small, and medium-sized businesses (usaha mikro, kecil, dan menengah – “UMKM”) which depend on local e-commerce for their sales. These companies must have Taxpayer Registry Numbers (Nomor Pendaftaran Wajib Pajak – “NPWP”) before they can sell anything online, while there are millions of foreign UMKM who ply their trade via e-commerce to Indonesian customers who are not impaired by this obligation.
The Need of Providing a Level Playing Field via Cross-Border e-commerce Tax
Local e-commerce merchants actually agree with this obligatory tax for the sake of the nation. However, they must also be given a level playing field in order to be able to compete with foreign e-commerce. In order to generate this equality, Prabowo-Sandi have promised to implement a cross-border e-commerce tax if they win. This would guarantee protection for local startups and UMKMs.
Many countries have implemented this type of tax to protect local e-commerce. Amazon, Alibaba, and other global e-commerce giants must comply with this regulation and pay taxes for purchases made from countries that implement cross border e-commerce tax. This policy is not just for protecting local e-commerce and UMKM, but also to protect domestic industry, as most of the goods sold by foreign e-commerce are produced in their respective countries. In general, the cross-border e-commerce tax policy will ensure long-term support of local businesses. It favors UMKM, favors Local, and favors Long-Term Growth.
On the contrary, the new Minister of Finance regulation does not contain this concept, causing many e-commerce and UMKMs question the Government’s support of local companies.
Prabowo-Sandi will Grant Two Years’ Tax Holiday for UMKMs
Some UMKMs with both online and offline businesses are intimidated by the obligation to register their NPWP before they can start selling at local e-commerce platforms. They actually want to contribute to the nation, but financial troubles caused by the new growth of their business do not allow them to make this contribution. This is part of UMKM psychology that we must be able to understand. Therefore, Prabowo-Sandi will grant a 2-year Tax Holiday for each UMKM at the start of their (offline) business, or to start selling on online platforms. This is a means to show support and generate equality, because so far only large investors get a Tax Holiday from the Government.
This policy will encourage the creation of millions of new UMKMs, as it would erase the public’s concerns about taxes, especially in relation with tax administration. So far, tax administration is still perceived to be difficult and unfriendly to UMKM. Specific for online UMKM, e-commerce platform can help them register their NPWP gradually, as well as preparing them and educating them for business. We don’t want to kill off newly-grown sprouts.
Through the educational and guidance partnership with local e-commerce, Prabowo-Sandi believe that UMKM compliance in paying taxes will increase. The obligation to pay taxes applies to anyone who earns money. UMKM will be systematically educated so that they get into the habit of “Report and Deposit” their taxable earnings. The “Report” obligation is combined with the need to obtain NPWP, while “Deposit” obligation only applies if there are “profits” made. With the assistance of the entire existing economic ecosystem, the tens of millions of offline and online UMKMs will be prepared so they can contribute taxes to the State in the future.