JAKARTA, 99 Tekno – The rapid expansion of Indonesia’s digital economy has yet to translate into proportional state revenue. Despite a booming digital market dominated by global Over-the-Top (OTT) platforms, the tax contributions from this sector remain significantly below their actual potential.
A recent study by the Center of Economic and Law Studies (Celios), titled Governance of the Over-the-Top Industry in Indonesia, highlights a glaring fiscal gap within the national digital sector. While the digital economy’s gross merchandise value (GMV) has soared to Rp 1,350 trillion, the government has only managed to collect Rp 32.32 trillion in digital taxes.
This disparity results in a digital tax coefficient of 0.27, a figure remarkably low compared to conventional sectors like manufacturing and financial services, which maintain tax coefficients two to three times higher. The Celios report offers a comprehensive analysis of Indonesia’s digital tax structure, the business models of global OTT platforms, international regulatory benchmarks, and the potential impact of policy interventions, such as a 1% to 3% Withholding Tax (WHT) and a 0.75% Universal Service Obligation (USO) levy.
Nailul Huda, Director of Economic Studies at Celios, argues that this low contribution is not merely a technical oversight but a sign of systemic failure in Indonesia’s digital tax governance. “For every Rp 100 in digital transactions, the state collects only 27 cents (Rp 0.27) in tax. This is a systemic flaw,” Huda stated on Tuesday (June 2).
“Global OTT platforms operate in Indonesia without significant physical presence, generating hundreds of trillions of rupiah from our market while evading full national tax jurisdiction. The value chain is created here, but the taxation is not,” he added.
According to Celios, this inequality is exacerbated by the current composition of digital tax revenue. More than 77% of this revenue is derived from Value Added Tax on Trade Through Electronic Systems (VAT PMSE). Crucially, this tax is borne by Indonesian consumers rather than the global OTT companies themselves. Consequently, the corporate income tax contribution from these digital giants remains minimal, even though Indonesia serves as the fourth-largest market for Google and the third-largest for Facebook globally, with over 200 million active internet users.
“The fiscal burden of the digital economy is being shouldered by the Indonesian people, not the global platforms. It is a highly regressive and unfair tax structure,” Huda emphasized. He further noted that while national telecommunications operators must allocate approximately 17.2% of their revenue to maintain digital infrastructure, OTT platforms—which rely on these networks—carry no comparable obligation.
Jaya Dharmawan, a Public Policy and Fiscal Researcher at Celios, projects that the implementation of appropriate policy instruments could significantly boost state revenue in the coming years. By 2026, potential additional revenue is estimated to range between Rp 7.52 trillion and Rp 30 trillion. Looking ahead to 2030, a 1% WHT could generate Rp 37.42 trillion, while a 3% WHT could reach Rp 112.27 trillion. Additionally, a 0.75% USO scheme is projected to contribute Rp 28.07 trillion, which could be directly earmarked for information and communication technology (ICT) infrastructure development.
To address these challenges, Celios recommends a package of six policy measures implemented simultaneously. The primary recommendation is the issuance of a government regulation on OTT Governance, requiring foreign platforms to register as a Digital Permanent Establishment (BUT). This would utilize a Significant Economic Presence scheme based on user counts, transaction volumes, and advertising revenue.
The study also acknowledges regulatory hurdles, specifically the Agreement on Reciprocal Trade (ART) between Indonesia and the United States, which limits the implementation of non-discriminatory digital services taxes. However, Celios asserts that instruments like WHT and USO, if applied consistently to all foreign platforms, remain legally viable.
As the debate surrounding OTT taxation intensifies, the responsibility falls heavily on the Directorate General of Taxes and the Ministry of Finance to find a sustainable path forward.
Summary
Indonesia’s booming digital economy is currently yielding disproportionately low tax revenue, with a digital tax coefficient of only 0.27. A report by the Center of Economic and Law Studies (Celios) highlights that the majority of digital tax income comes from VAT paid by consumers rather than corporate income tax from global Over-the-Top (OTT) platforms. These companies generate massive profits from the Indonesian market while avoiding significant tax obligations or the costs of maintaining local digital infrastructure.
To address this fiscal gap, Celios proposes implementing a Withholding Tax (WHT) of 1% to 3% and a Universal Service Obligation (USO) levy of 0.75% on foreign OTT platforms. Furthermore, the study recommends mandating that these companies register as a Digital Permanent Establishment to ensure they contribute fairly to the national economy. If enacted, these measures could generate substantial revenue by 2030, helping to fund critical information and communication technology infrastructure development.