Page 7 - Indonesia Taxation Quarterly Report (Q1-2019)

INDONESIA TAXATION QUARTERLY REPORT Q1-2019 Executive Summary

In terms of regional fiscal, several the digital economy. The main issue is
reforms have been carried out, both to change the physical presence-based
in terms of administration and policy. international tax system in categorizing
This is conducted in order to increase PEs and allocate profits that take into
local taxing power and reduce the level account the contribution of the value
of regional dependency on the central creation resulting from digitalization.
government. Furthermore, Non-Tax Second, the rule-making processes must
State Revenue showed unsatisfactory keep up with the times as the nature of
results in the first quarter especially due digital economy businesses is full of
to the influence of commodity prices. rapid changes. Third, the number of
unilateral action initiatives from various
At the global level, discussions about countries in taxing the digital economy
changing international tax architecture must be in accordance with its fiscal
are currently being brought forth. This sovereignty. These unilateral actions
was triggered by a proposal from the produce the fourth challenge, namely
OECD on the global consensus on the difficulty of consensus at the global
taxation of the digital economy that level.
‘deviates’ from the current international
tax system. In the same period, the At present, the options to tax digital
European Union launched the Anti-Tax economy are being discussed at
Avoidance Directive (ATAD) while the the international level. The proposal
IMF issued a Policy Paper on various submitted by the OECD contains 2 main
alternatives of international tax systems pillars. The first pillar aims to regulate tax
aimed at reducing tax competition, tax allocation more equitably by extending
avoidance, and implying partiality for taxing rights to market jurisdictions
developing countries. through 3 alternative approaches: user
participation, marketing intangibles,
and sufficient economic presence. The
Taxes and Digital Economy second pillar focuses on the global
availability of anti-base erosion rules. All
The developments of the digital of these options will essentially benefit
economy have resulted in the complexity Indonesia as a market jurisdiction that
of its taxation. In essence, digital has many users. However, each of
economy is a process of digitalization of these options has different degrees
real economy. Therefore, the taxation of of advantages and difficulties in
the digital economy should not require implementation.
special treatment or separation from
the real economy. This is to ensure a In Indonesia, the issue of taxing the
level playing field of economic activities digital economy is also reflected in
carried out both conventionally and the MoF Regulation Number 210/
digitally. In general, administrative PMK.010/2018 concerning the
breakthroughs are required to ensure Taxation on Trade Transactions through
compliance from players in the digital Electronic Systems (E-Commerce)
economy ecosystem. (PMK 210/2018) which was revoked
at the end of March. Basically, it does
Nonetheless, digitalization has also not provide specific new policies, but
increased the risk of base erosion and only in the form of administrative
profit shifting (BEPS), especially from breakthroughs and taxation procedures
digital economy giants who are able for the e-commerce ecosystem. The
to obtain income from a jurisdiction regulation is not without shortcomings,
without paying taxes fairly to those namely the inability to guarantee a level
source jurisdiction. In brief, there are playing field between domestic and
at least 4 challenges in taxing the foreign electronic commerce as well as
digital economy and those related to other online platforms, not formulated
BEPS. First, we are faced with technical in a participatory manner, and results
difficulties in designing policies that can in compliance costs. However, the
provide a fair allocation of taxing rights revocation is regrettable especially as it
and tax payments from the activities of will be more difficult for the government

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