Last month Indonesian president Joko Widodo toured Silicon Valley and paid visits to the area’s tech giants. Now, it’s their turn to pay Indonesia something—namely, local taxes.
Indonesian finance minister Bambang Brodjonegoro recently announced that all internet-based services will be required to pay local taxes and obtain “permanent establishment” status. The latter can be in the form of either a representative office or full-fledged company. He compared the arrangement to that already shared by Indonesia and contractors in the oil sector.
A legal decree on the matter is expected by month’s end. After a likely transition period, the government said, it will block internet services that don’t comply, or reduce their bandwidth.
Indonesia has the fourth-largest population in the world, with over 260 million people, and Indonesians tend to adopt social media with gusto. Some 89% of adult internet users (or smartphone owners) use social networking, according to the Pew Research Center, well ahead of the US, Japan, and Germany.
The nation also has the world’s fourth-largest population of Facebook users, and Jakarta has been deemed the world’s most active Twitter city. That’s especially impressive considering Indonesia still suffers from relatively low internet penetration rates, with only about a third of the nation online—which means there’s plenty of room for gaining more users.
Some tech giants already have a representative office in the country, but are still not paying taxes. “Google has an office in Indonesia, but digital-age transactions do not go through that office,” noted Rudiantara, head of the communications ministry. “That is what we’re looking to straighten out.” His ministry estimates that digital advertising from Indonesia was worth about $800 million last year, but the business was left untaxed.
With the new regulations, authorities aim to not just collect taxes, but to also better control pornography and terrorism-related content. In January terrorists linked to ISIL attacked civilians and police in the capital Jakarta. And authorities recently blocked all Tumblr sites because of porn, though it backtracked after protests. They also nudged Japanese messaging app Line into removing LGBT-themed virtual stickers from its local store, part of a growing anti-gay movement in Indonesia.
Indonesia is not the only nation scrutinizing the amount of tax tech giants pay locally. British tax authorities announced in January that Google would make a back payment of $190 million relating to profits the company generated in the UK in the past decade, though critics scoffed at the low amount. In 2014, Facebook paid just £4,372 (about $6,100) in corporation tax in the UK, despite having tens of millions of users there.
If internet giants are forced to pay local taxes in Indonesia, expect governments around the world to take notice.