Starting next month, it will cost Amazon, Netflix, Spotify and Google more to do business in Indonesia.
The Southeast Asian country’s national tax office announced it will impose a 10 percent value-added tax (VAT) on foreign global technology companies as the nation looks for ways to defray the costs of battling the economic effects of the COVID-19 pandemic, Reuters reported.
A VAT is levied on a product whenever value is added at each stage of the supply chain, from production to sale.
The tax is in response to an expected 13 percent drop in state collections as the coronavirus took its toll on revenues. In addition, the country has spent nearly $50 billion for the fight against the virus. The country’s total budget for 2020 is $177.6 billion.
With a population of nearly 270 million, Indonesia is in the midst of a boom in its digital economy, which is expected to reach $130 billion by 2025, according to a study by Google, Temasek Holdings and Bain & Co.
Under the terms of the VAT, foreign companies that sell digital products and services in Indonesia worth at least 600 million rupiah ($41,667) a year, or generate annual traffic from at least 12,000 users, will be required to pay the 10 percent VAT, the news service reported.
“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,” Hestu Yoga Saksama, tax office spokesman, told Reuters.
A Netflix spokesman said the company would comply.
“It is for governments to decide the rules on VAT and in every country we operate, Netflix respects those rules,” Netflix told Reuters.
Amazon Web Services, Google and Spotify did not respond to requests for comment.
Earlier this year, Liz Armbruester, senior vice president of global compliance at Seattle software company Avalara, told PYMNTS cross-border commerce is expected to reach as much as 15 percent of the online retail market.
“We want things now, and we want them from everywhere,” she said, noting firms that want to sell across borders have to take VAT, tariffs and other costs of doing business into their strategic plans.