Indonesia imposed a 10% value-added tax on sales by technology firms including Amazon, Netflix, Spotify and Google on Tuesday, as spending patterns shift with increased remote working as a result of the coronavirus crisis, which has hit state finances.
The Southeast Asian country’s tax office said in a statement that it had already assigned tax identification numbers to Amazon Web Services, Netflix, Spotify and Alphabet’s Google for its Google Asia Pacific, Google Ireland, and Google LLC units.
Indonesia, the world’s fourth most populous country with a population of nearly 270 million, is experiencing a boom in its digital economy which is expected to reach $130 billion by 2025, a study by Google, Temasek Holdings and Bain & Company predicts.
It expects a 13% yearly drop in state revenue this year as the pandemic hits business activity, which combined with nearly $50 billion for the fight against the coronavirus is forecast to more than triple its 2020 budget deficit.
Under the new rules, non-resident foreign firms which sell digital products and services in Indonesia worth at least 600 million rupiah ($41,667) a year or which generate yearly traffic from at least 12,000 users will be required to pay the 10% VAT.
“The tax office will continue to communicate with relevant businesses abroad … the number of companies assigned to apply VAT for digital products will likely increase,” tax office spokesman Hestu Yoga Saksama said.
A Netflix spokesman told Reuters that it would comply.
“It is for governments to decide the rules on VAT and in every country we operate, Netflix respects those rules.”
Amazon Web Services, Google, and Spotify did not immediately respond to requests for comment.
The United States Trade Representative office has launched an investigation into Indonesia and other countries for adopting or considering Digital Services Taxes, but Indonesian Finance Minister Sri Muyani Indrawati said the VAT move was not part of this.