With latest e-commerce tax, Indonesia wants to cash in on its unicorns

Jakarta, Indonesia. Photo: Pixabay

Indonesia’s booming e-commerce industry is churning out unicorns such as Tokopedia PT and Bukalapak.com. It’s also creating a headache for the government and the rupiah.

Authorities are trying to capitalize on this fast-growing cash cow by taxing e-commerce transactions. Starting April, online retailers will need to collect, deposit and report income and value-added taxes. Small and medium-size businesses must pay income tax of 0.5 percent of revenue, while large enterprises will be subject to a 25 percent levy on profits.

The government of Joko Widodo may feel it’s entitled to reap some benefit from an internet economy that CLSA Ltd. estimates will surpass India in market size as soon as 2020. As retail business shifts online from bricks-and-mortar outlets, the government may also get to improve its tax collection. Roughly 65 percent of all offline retail sales are conducted by unregistered businesses that don’t file or pay taxes, according to CLSA. Indonesia has one of the lowest tax-to-GDP ratios in the region.

Officials worked hard last year to stabilize the rupiah, and the e-commerce boom hasn’t been helping. Indonesia’s currency tumbled almost 15 percent between January and October, haunted by the country’s twin fiscal and current-account deficits. The main culprit for the widening current-account gap remains fuel subsidies, which the Jokowi government is reluctant to abolish as a presidential election draws near. But imports of consumer goods — driven partly by the rise in e-commerce — are also surging.

In 2018, consumer goods amounted to more than 9 percent of total imports, from 7 percent a decade ago. Oil and gas, on the other hand, accounted for 15.8 percent of inbound shipments, down from 19 percent. Popular online items, such as clothing, footwear and cosmetics, have all grown at double-digit rates, according to Malayan Banking Bhd.

From Lazada to Shopee, Indonesia’s largest e-commerce businesses are all funded by deep-pocketed Chinese companies such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd. With domestic manufacturing inadequate, it’s little surprise that online retailers have tapped into their patrons’ networks. The Indonesian businesses of Lazada and Shopee both receive at least 5 percent of their gross merchandise value from overseas-based merchants, mainly in China and South Korea, says CLSA.

The country’s e-commerce industry is poised to more than quadruple to $53 billion by 2025, from $12.2 billion last year. That means billions of dollars more in imports unless Indonesia develops a vibrant consumer manufacturing industry.

The government is obviously worried about how one-way international e-commerce may destabilize Indonesia’s external accounts. Last year, it raised import tariffs on more than 1,000 goods to support the rupiah. Tariffs on imported cosmetics jumped to 10 percent from 2.5 percent.

The unicorns must be groaning in pain after the latest tax change. With a vigilant taxman knocking on their doors, small merchants may abandon the specialist e-commerce marketplaces. Online retail first took off in Indonesia on social media, and small sellers may well be tempted to return to their Facebook and Instagram accounts.

Everyone wants to cash in on unicorns. Short of money, the Indonesian government just wants more rupiah in its treasury. If e-commerce growth does cool, at least the rupiah can breathe a sigh of relief.

Bloomberg

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.