Netflix Illustration.

Indonesia to Pursue Foreign Company to Pay Tax

"Yes, (Netflix) has not (paid taxes). Basically, it is not legally possible to collect their (OTT companies) taxes in Indonesia," explained Hestu Yoga Saksama, Director of Counseling, Services and Public Relations of the Directorate General of Taxes, as reported in Kompas on Thursday (01/16/2020).According to data from the Statista , the number of Netflix customers in Indonesia reached 481,450 in 2019. Netflix offer a monthly subscription for Rp 49,000. It can be roughly estimated that Netflix's gross revenue per month reaches around Rp 24 billion from Indonesia's customers.Within a year, gross income, that Netflix could obtain, may reach Rp 288.87 billion. Indonesia's normal VAT tariff is 10 percent, then the potential for lost tax reaches Rp 28.88 billion annually. The potential tax lost in 2020 will be greater because it is projected that Indonesia's subscription count will reach 906,800.Based on current Indonesia's law, Value Added Tax (VAT) is usually collected from imported tangible goods or intangible goods through customs. However the TV series provided by Netflix, an OTT company, is streamed through the internet network directly to customers, not through customs.Indonesia also can not collect Netflix's Income Tax. According to the law, Indonesia can only collect Income Tax from foreign company if the company has been established as Permanent Business Entity. Reported in Kompas on Wednesday (01/15/2020), the Omnibus Law (Work Creation Bill) is currently being finalized by the government, will soon be passed. The government will immediately submit the draft to the parliament.Indonesia's president, Joko Widodo, has requested that the discussion on the Bill, between the parliament and the government, should be completed within 100 working days."We will ask them (to become) VAT collectors, just like PKP (Taxable Companies) in the country," explained Yoga as reported by Kompas, Wednesday (01/15/2020).If OTT companies don't have office in the country, they must appoint a representative to collect VAT for the services they sell in Indonesia. The representative can be an external party, such as an agency.Based on Indonesia's income tax law, Permanent Business Entity must have a physical presence in country. Now, Netflix has no physical office, so its income cannot be taxed. The Omnibus Law will regulate that foreign company does not have to have a physical presence.If there is a substantial or significant economic presence the OTT company income will become taxable. Although, the significance criteria it is still unclear.