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Law360 (July 7, 2020, 9:13 PM EDT) -- Indonesia announced Tuesday that it will impose an anticipated 10% value-added tax on global tech companies doing business in the country as of Aug. 1, and Amazon, Google, Netflix and Spotify will need to collect the new levy.
The Indonesian Directorate General of Taxes, known as DJP, reiterated in a statement that foreign companies' sales of digital products and services will be affected by the VAT. The tax had been slated to take effect July 1 to help pay costs of economic damage caused by the COVID-19 pandemic, according to a government statement in May.
Starting next month, Amazon Web Services Inc., Google Asia Pacific Pte. Ltd., Google Ireland Ltd., Google LLC, Netflix International BV and Spotify AB will need to collect the VAT on all digital products and services sold in Southeast Asia's biggest economy.
DJP described its move as the "first wave" of activity involving foreign companies affected by the new tax. The tax authority stated that it was in contact with other foreign companies, "so that it is expected that in the near future the number of business actors appointed to collect VAT on digital products will continue to grow."
Indonesia joins Mexico, India, Thailand, Chile, Kenya and Nigeria in enacting some form of digital tax in 2020.
The tax is seen as a way for Indonesia to ease growing financial pressure. The archipelago country has the region's highest number of cases of and deaths from COVID-19, the respiratory disease caused by the novel coronavirus. The government has projected a 13% drop in revenue this year, though it plans 695.2 trillion rupiah ($48.1 billion) in stimulus spending to boost the economy.
The new VAT stipulates that foreign companies that sell digital products and services worth more than 600 million rupiah annually, or that generate yearly traffic of more than 12,000 users, are subject to the levy.
Indonesia boasts the biggest digital economy in Southeast Asia, with internet-related commerce expected to reach $133 billion in 2025, compared with $40 billion in 2019, according to research by Google, Temasek Holdings and Bain & Co.
The pandemic has accelerated the industry's growth, with people increasingly using digital services amid lockdowns that have forced them to spend hours indoors.
The DJP's announcement came the same day that state-owned Telekomunikasi Indonesia, the country's biggest telecommunications provider, said it was removing a ban on Netflix. The company had blocked access to the streaming service since 2016, citing government restrictions on sexual and violent content.
--Editing by Tim Ruel.
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