Indonesia will impose VAT on digital services from July

Indonesia will require big internet companies to pay value-added taxes (VAT) on sales of digital products and services from July as part of efforts to boost revenue amid the coronavirus pandemic.

It will impose 10 per cent VAT on digital products sold by non-resident internet companies with significant presence in the Indonesian market, including streaming services, applications and digital games, beginning July 1, according to a regulation published on a website of Indonesian government, reports Reuters.

Indonesia has previously said services by streaming platforms like Spotify and Netflix would be subject to the new tax. Neither company responded to requests for comment.

Products and services bought via Alphabet Inc's Google Play among others would also fall into the category, although the government has not named any companies other than Spotify and Netflix. Google could not be immediately reached for comment.

Indonesia currently charges a 10 per cent value-added tax on sales of most products and services.

The country has aimed to get internet companies to pay their fair share of taxes for years and the decision to impose VAT was announced in March when President Joko Widodo outlined emergency measures to help the country weather the coronavirus crisis.

The package was passed by parliament earlier this week.

Indonesia's internet economy is the biggest and fastest growing in Southeast Asia and is expected to reach $130 billion by 2025, according to a research by Google, Temasek Holdings and Bain & Company.

Finance Minister Sri Mulyani Indrawati has said that imposing VAT on internet goods was to make sure the government captures the shift in people's consumption patterns as they stay at home during a lockdown to curb the spread of the virus.

Consumers have been buying fewer physical goods, but demand for digital items has risen, Indrawati has said.

The ministry's tax department has been in contact with representatives of affected companies, but declined to name them, tax office spokesman Hestu Yoga Saksama said.

The government expects a 10 per cent drop in state revenue this year due to the impact of the coronavirus pandemic and weak commodity prices, forecasting that economic growth will more than halve to 2.3 per cent, from 5 per cent in 2019. It expects a fiscal deficit of 5.07 per cent of GDP for 2020, the biggest in more than a decade.