Indonesia wants permit regime for online businesses

Photo by arztsamui. Image ID: 10083228

Online business in Indonesia should register and secure a permit from government before they are allowed to operate, according to a draft regulation (RPP) being prepared by the government.

The draft new regulation, scheduled to be issued in February 2016, is currently being discussed by the Trade Ministry, Communication and Information Ministry and the Law and Human Rights Ministry. The Indonesian government is of the view that the regulation was a necessity as the current online trading practice was not supervised by the government.

The draft regulation which has drawn mixed reaction from players and consumer groups is likely to influence the landscape and the future growth of e-commerce in the country.

Trade Minister Rachmat Gobel said after the regulation is issued, e-commerce traders must obtain a permit in accordance with applicable laws. Permits will be obtainable through registration with the Communication and Information Ministry

““Foreign merchants must secure a permit from us (government) before starting an online business in Indonesia,” the minister told reporters recently.

The registration and permit requirements for online businesses will also apply to foreign businesses operating in Indonesia. Under the law, online businesses will be divided into three categories: merchants, electronic transaction providers and intermediary service providers.

Google Indonesia, iDea and Taylor Nelson Sofres (TNS) said in their report that Indonesia online shopping value has the potentiality to reach Rp300 trillion ($25 billion) by 2016. Last year alone, the total value of e-commerce transactions in Indonesia was recorded at $12 billion.

Communications and Information Minister Rudiantara is more optimistic. He predicts that the e-commerce market in Indonesia will grow up to 42% by the end of this 2015 to around $20 billion this year.

The e-commerce in the country is mainly driven by at least eight sectors namely retail industry, consumption products, telecommunication, technology, heavy equipments, and tourism. Rudiantara added despite growing exponentially, Indonesia’s e-commerce transaction volume was still much lower than that of China.

A surge of local e-commerce players have been trying to find ways to cash in on the country’s growing market. Diversified conglomerate Lippo Group recently announced that it would invest $500 million to develop, a website that will help sell products from the group’s fashion retail chain PT Matahari Department Store.

In addition, at least eight Indonesian companies are entering e-commerce industry, namely retailer PT Mitra Adiperkasa Tbk (MAPI), convenient store operator PT Sumber Alfaria Trijaya Tbk (AMRT), mobile phone retailer PT Erajaya Swasembada Tbk (ERAA), heavy equipment distributor PT United Tractors Tbk (UNTR), PT Elang Mahkota Teknologi Tbk (EMTEK), mobile phone distributor PT Trikomsel Oke Tbk (TRIO), travel agency PT Panorama Sentrawisata Tbk (PANR), and property and hotel operator PT Surya Semesta Internusa Tbk (SSIA).

Mitra Adiperkasa Tbk indeed plans to focus more on its e-commerce capability, especially on its mapemall service which is set to be launched in second semester this year. The platform will be supported by three MAP’s running e-commerce portals, which are planetsports, lineshoes, and LiverpoolFC Indonesia Official Store.

Meanwhile Sumber Alfaria launched its retail website called alfaonline by injecting Rp 12.5 billion through its subsidiary PT Sumber Trijaya Lestari. Panorama, on the other hand, is building its brand in digital world by introducing a number of ticket reservation portals, including BookPanoramaPanorama-ToursMyHotelFinder, Travelisious, and PHM.

In property sector, there is Surya Semesta which is diversifying its business into tourism through PT Horizon Internusa Persada (Travelio) whose vision is to be the best online hotel platform in Asia Pacific, based in Indonesia.

In related development, Elang Mahkota Teknologi (Emtek), TPG capital, and SquarePeg Capital took part in  PropertyGuru’s investment worth S$175 million. Emtek has invested at two emerging e-commerce players, BukaLapak and Bobobobo.

In mobile phone and gadgets distributor sector, Erajaya and Trikomsel are entering the e-commerce foray. Erajaya enters the e-commerce market through its Erafone brand, while Trikomsel established a special division called Trikomsel Internet Media Incorporated (TIMI). Trikomsel also plans to form a joint venture with SingPost E-Commerce, Singapore Post’s subsidiary, to develop an e-commerce service in Indonesia.

In an effort to create a more conducive climate for the e-commerce industry, the government plans to issue a set of regulations called the “e-commerce roadmap” in the next three to six months. The roadmap will provide clear guidelines regarding logistics services, payment gateways and tax —among others — for the e-commerce industry, Coordinating Economic Minister Sofyan Djalil said.

Under Presidential Decree No. 39/2014, the government includes e-commerce among the industries closed to foreign investment, requiring e-commerce businesses to be wholly owned by local players. The regulation initially aimed to boost the growth of local e-commerce players and prevent foreign players from taking advantages.

Acquisitions of key Indonesian e-commerce players have occurred over the last few years, such as that of by US-based LivingSocial Inc. and Disdus by US-based Groupon. The regulation, however, is deemed counterproductive by a number of e-commerce associations, who claim it hinders people from developing start-up businesses because of a lack of funds.