In a move seen to give a leg up to the entrepreneurial ecosystem, Indonesia is considering granting income tax incentives of near zero per cent or a tax holiday for e-commerce startups.
Secretary of the Coordinating Minister for Economy Lukita Dinarsyah Tuwo said the proposed tax incentive is included in the draft Presidential Decree that will be submitted to President Joko Widodo this week. He explained that startups will not be taxed because their business is not profitable yet.
“We are proposing to offer tax holiday,” he told DEALSTREETASIA late Wednesday.
In addition, e-commerce companies that have incomes below Rp3.8 billion or are categorised as micro, small, and medium enterprises (SMEs) will be subject to lower rate of income tax of 5 per cent instead of the normal 10 per cent.
Furthermore, Lukita, who also serves as Chairman of E-Commerce Development Team set up by the government, added that the detailed rules regarding taxation for venture capital firms are being drafted and expected to be completed within one year.
Separately, Minister of Communications and Information Rudiantara added the government plans to impose “simple taxation scheme” for venture capital firms.
“The tax scheme would not be complicated,” he added.
In the context of value-added tax (VAT), it will not be based on the input tax and output tax. He stated, the value added tax could be similar to final income tax of 0.1 per cent imposed on the stock market brokers.
In addition to the relaxed taxation regime, Rudiantara said, there are six other aspects to boost development of e-commerce that are part of the roadmap.
One of the most critical is the logistics piece, which is the backbone of the e-commerce industry and a huge cost driver.
The government is looking at re-positioning PT Pos Indonesia to be part of the e-commerce ecosystem in a bid to address the high-cost issue in logistics. The Ministry of State-Owned Enterprises (SOEs) will supervise this state-owned re-positioning plan.
“At present, big e-commerce players like Lazada are setting up their own logistics system, however, they do not have the economies of scale, while PT Pos has 3,000 offices across the nation,” he said.
From the funding side, he insists there is the possibility of converting the distribution of People’s Business Credit (KUR) to venture capital. This conversion is important because the funding of e-commerce cannot be put on par with banks credit that require installment every month.
“The model is modified a bit,” he explained.
He said state funding for startups in neighboring countries was far more advanced. He cited a local startup in Brunei Darussalam obtained funding of RM50,000 or about Rp500 million. And, foreign startups get funding up to 30,000 ringgit.
“However, in Brunei, the market is small. Indonesia has the market,” he said.
With regards to infrastructure, the Communication and Information Technology ministry is pushing 4G infrastructure development through the nation-wide Palapa Ring broadband programme.
In addition, the roadmap of the development of e-commerce also includes national payment system through payment gateway.
Lastly, the roadmap will also cover the human resource development aspect related to e-commerce industry, he added.
Minister of Education and Culture Anies Baswedan has agreed to include coding into the curriculum of vocational schools from 2016-2017.