Indonesia to introduce 10% VAT on internet giants

The Indonesian Government has risked the wrath of the White House by introducing a Value Added Tax (VAT) on several companies including Facebook, Amazon and Google.

Announced on July 7, six companies were to be taxed by the Directorate General of Taxes (DGT). These companies were (or subsidiaries of) Amazon, Google (three companies), Spotify and Netflix. At the end of last week, August 7, ten more organisations were added to the list; Facebook (three companies), Disney, Apple, additional Amazon subsidiaries and TikTok.

The rapidly growing South East Asian country has been discussing a potential tax for internet companies who avoid obligations by having no physical presence. This 10% VAT is fundamentally no different from digital sales taxes which have been introduced in Europe, aside from how the net has been cast. This might cause some conflict with the US political class.

President Trump’s objections to the digital sales taxes in the UK, France and Italy are focused on the assumption the European nations are targeting US prosperity and success. However, the European nations can defend their actions by pointing to the criteria which discusses revenues earned in the country, number of subscribers and international revenues. It does not reference any specific companies or countries.

In specifically naming companies to be taxed, it does put the Indonesian Government in a slightly weaker position, open to rebuttal from the US. The majority are US companies, and some might suggest the Indonesian Government has simply cherry picked the biggest and the richest.

There are of course nuances and thresholds introduced as part of the rules, though these will likely be brushed aside should the new VAT irritate the White House. The presence of these lists could act as an Orangish-red flag to the Oval Office.

The US Government has often sought to protect the interests of its domiciled businesses in international markets, regularly retaliating with the introduction of tariffs, and perhaps we will see the same here. The developing digital economy in Indonesia offers a lot of opportunity, and this will not have passed the residents of Silicon Valley without