Indonesia’s new e-commerce tax mechanism: Who pays, who loses and what it means for online shopping

[JAKARTA] Indonesia will require major e-commerce platforms to collect income tax directly from millions of online sellers from Aug 1, as the government steps up efforts to bring its rapidly expanding digital economy into the formal tax system.

The regulation, issued on Jul 1, initially applies to four major marketplaces – Tokopedia, Shopee, Blibli and Lazada – and shifts part of the tax collection responsibility from individual merchants to the platforms themselves.

While the government said the measure is designed to improve tax compliance and create a fairer business environment, it raises questions over how sellers, platforms and consumers will respond.

The Business Times breaks down how the new tax collection system works, who will be affected and what it could mean for Indonesia’s e-commerce industry.

How does the tax work?

Under the new rules, major e-commerce platforms will act as tax collectors on behalf of the government. When a customer purchases a product through a marketplace such as Tokopedia, Shopee, Blibli or Lazada, the platform first determines whether the seller is subject to withholding tax.

Sellers with an annual turnover of more than 500 million rupiah (US$27,800) are generally subject to the scheme, while those with a turnover of 500 million rupiah or less are exempt if they submit a declaration letter to the tax authority.

For eligible sellers, the marketplace withholds income tax equal to 0.5 per cent of the seller’s gross sales before transferring the remaining proceeds to the seller.

Tokopedia, in a statement, said the income tax withheld through its platform will be remitted to the Finance Ministry on a monthly basis.

Why is Indonesia introducing this rule now?

The Directorate General of Taxes said the regulation does not create a new tax, but changes how existing income tax obligations are collected. Income from business activities has long been taxable under Indonesia’s tax laws.

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The policy aims to create a level playing field between online and offline businesses while making it easier for merchants to meet their tax obligations.

Inge Diana Rismawanti, director of counselling, services and public relations at the Directorate General of Taxes, said millions of small merchants now earn income through online marketplaces, yet many remain outside the formal tax system.

“Collecting taxes from individual sellers has proved administratively difficult, particularly for micro businesses with limited bookkeeping,” she said in a briefing.

Inge said that by requiring large e-commerce platforms to withhold income tax at the point of sale, the government shifts much of the compliance burden from millions of individual sellers to a handful of digital platforms.

This allows tax authorities to collect revenue more efficiently while reducing opportunities for under-reporting.

Which platforms are likely to be most affected?

The biggest impact is likely to fall on the largest marketplaces, which will now shoulder additional tax compliance responsibilities, said Prianto Budi Saptono, executive director of the Pratama Kreston Tax Research Institute and a lecturer in fiscal administration at the University of Indonesia.

Beyond collecting taxes, platforms will need to verify seller information, maintain reporting systems and coordinate with tax authorities.

“These administrative costs could increase operating expenses,” said Dr Prianto.

However, he said the largest players are also best positioned to absorb those costs given their scale and existing technology infrastructure.

Smaller platforms or emerging social-commerce businesses could initially benefit if sellers migrate to channels perceived as less tightly regulated.

“But that advantage may prove temporary if authorities expand the policy more broadly,” Dr Prianto said.

Will sellers simply raise prices?

Some may try, but not all will succeed.

Dr Prianto said that large merchants with established brands may be able to pass part of the additional tax cost to consumers.

Meanwhile, smaller sellers operating in highly competitive product categories such as fashion, beauty and household goods may find that much harder.

“Indonesia’s e-commerce market remains intensely price-sensitive, with platforms competing aggressively through discounts, free shipping and promotions,” he said.

“Sellers who raise prices risk losing visibility and customers to competitors.”

Instead, many merchants could absorb the additional cost through lower profit margins, especially if the tax withheld broadly reflects obligations they should already have been paying.

Could sellers leave the major marketplaces?

Several merchants interviewed by BT said the impact would ultimately depend on how the policy is implemented.

Some merchants may consider shifting part of their business to social-commerce channels such as Telegram, Instagram or WhatsApp if they perceive tax collection to be easier to avoid.

Regina Setiawan, a beauty cosmetic reseller for example, said she may increasingly rely on direct sales through livestreaming or private messaging, where transactions are harder to monitor.

However, leaving major marketplaces is not straightforward. Platforms such as Shopee and Tokopedia offer access to millions of consumers, integrated logistics, digital payments and marketing tools that smaller channels cannot easily replicate.

For Andi Firmansyah, a Jakarta-based sports apparel seller, those benefits outweigh the additional compliance burden faced by many merchants.

“It also depends on whether similar tax rules are eventually extended across other digital commerce channels,” Andi said.

What does this mean for Indonesia’s digital economy?

The policy reflects a broader shift from encouraging rapid digital growth towards improving governance of the digital economy.

Indonesia’s digital economy is projected to reach US$360 billion by 2030, according to Google, Temasek and Bain & Company, but tax collection has lagged behind.

The country has one of the Asia-Pacific region’s lowest tax-to-gross domestic product ratios, with tax revenue amounting to just 9 to 11 per cent of GDP in recent years, according to the Organisation for Economic Co-operation and Development.

For years, policymakers prioritised expanding financial inclusion, digital payments and e-commerce adoption. As the sector matures, attention is increasingly turning to taxation, consumer protection and regulatory oversight.

Fakhrul Fulvian, economist at Trimegah Sekuritas, said that for Indonesia, the challenge will be balancing stronger tax enforcement with preserving the growth of millions of micro, small-and-medium enterprises that rely on online marketplaces for income.

The effectiveness of the measure will depend not only on how much additional revenue it generates, but also on whether it creates a more level playing field without slowing the growth of one of Indonesia’s most dynamic sectors.

“If implementation is perceived as fair and administratively simple, the policy could broaden the tax base without significantly disrupting e-commerce activity,” said Fakhrul.

But if compliance costs become too burdensome or enforcement remains uneven across different sales channels, he said sellers could shift activity elsewhere rather than enter the formal tax system.