Global tech giants' tax payments to Singapore bypass Indonesia, study finds

Global tech giants like Google and Meta are routing their tax payments through Singapore, bypassing Indonesian revenue collection despite generating trillions of rupiah in revenue within the country, according to the Center of Economic and Law Studies (Celios).

"When ads are shown in Indonesia, the tax actually runs to Singapore, because the headquarters of Google, Meta, and so on are in Singapore, not in Indonesia," stated Nailul Huda, Director of Digital Economy at Celios. He explained that the low tax contribution, just 0.27% of the national digital economy, is largely due to Indonesia relying on VAT for digital transactions, effectively making consumers pay the tax rather than the platforms.

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When ads are shown in Indonesia, the tax actually runs to Singapore, because the headquarters of Google, Meta, and so on are in Singapore, not in Indonesia.

Huda highlighted that a key reason for minimal tax revenue is that many global OTT platforms lack a permanent business entity or physical office in Indonesia. "When we say 'Google, pay taxes and so on,' they feel that since they don't have an office here, why should they pay taxes?" he questioned.

Celios points to Indonesia's Omnibus Law (Law No. 2 of 2020) as a legal basis for taxing foreign entities with a significant economic presence, even without a physical office. The study suggests implementing thresholds based on user numbers, transaction volume, or advertising revenue, referencing OECD recommendations for a minimum 15% tax on global OTTs meeting certain revenue and profit criteria. Celios proposes three policy scenarios: a 1% withholding tax, a 3% withholding tax, or a 0.75% Universal Service Obligation (USO) levy, similar to schemes used in South Korea, Turkey, and the EU.

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When we say 'Google, pay taxes and so on,' they feel that since they don't have an office here, why should they pay taxes?