- The rapid development in digital business models and ongoing shift from a conventional to a more digitally based economy is, unfortunately, causing the Indonesian Government various difficulties, particularly in terms of the imposition of digital taxes.
- The Director-General of Tax, Robert Pakpahan, has stated that a number of significant challenges still remain as regards the transition to a digital economy, specifically: 1) The implementation of fair and competitive legal frameworks which are able to offer legal certainty and an improved taxation system; 2) The development of a tax administration system which encompasses the utilization of digital technology; and 3) Cross-border and virtual transactions which are no longer reliant upon the physical presence of clients and customers or upon jurisdiction boundaries.
- The Indonesian Government has been making a serious effort to reach out to digital players in relation to the digital economy, including reclassifying the scope of permanent establishments through the issuance of Regulation of the Minister of Finance No. 35/PMK.03/2019 on the Determination of Permanent Establishments (“Regulation 35/2019”), which in general emphasizes economic presence over notions of physical presence.
- However, the Indonesian Government is still waiting for an international commitment to be made by the Organization for Economic C0operation and Development (“OECD”) prior to introducing any further measures relating to digital tax. (ANT)
- For more on Regulation 35/2019, see ILB No. 3586.
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