Indonesia's Tax Court Needs Reform for Digital Economy Challenges, Says Nominee

Indonesia's tax system faces a growing challenge from the digital economy, prompting a call for reform of the Tax Court. Yeheskiel Minggus Tiranda, a candidate for Supreme Court Justice specializing in tax cases, highlighted that cross-border digital transactions allow global businesses to profit from the Indonesian market without a physical presence.

This situation creates fiscal fairness issues. Domestic companies adhere to traditional tax rules, while international digital businesses can minimize their tax obligations through global legal loopholes. The government has introduced regulations, such as Value Added Tax (VAT) on Electronic System Transactions, which has generated approximately 40 trillion rupiah by mid-2025. However, Tiranda noted that the pace of substantive regulatory updates has not been matched by improvements in the judicial system, specifically the tax courts responsible for dispute resolution.

Tiranda argued that the "permanent establishment" principle, traditionally used for taxing cross-border entities, is insufficient for digital business models that generate value without a physical footprint. Internationally, the OECD/G20 Inclusive Framework on BEPS offers a two-pillar solution, with Pillar One reallocating taxing rights to market jurisdictions and Pillar Two establishing a global minimum tax rate.

Furthermore, Tiranda pointed out a conceptual issue with the Tax Court's dual oversight. While judicial matters fall under the Supreme Court, organizational, administrative, and financial oversight rests with the Ministry of Finance. This ministry also oversees the Directorate General of Taxes, a party often involved in tax disputes. Tiranda believes this configuration challenges the independence of the judiciary, as guaranteed by Indonesia's constitution.