Pak Reluctant to Mentally Make E-commerce Hot

This is the previous blog post of Andi S. Boediman published on his personal blog. Published on DailySocial with permission.

Continuing my writing about Regulation Without Incentives, Recently, I have been dealing with issues around e-commerce which have made me think long and hard about the policies that should exist and how this has an impact on e-commerce businesses.

Last September the Indonesian E-Commerce Association (idEA) together with the Directorate General of Taxes invited e-commerce companies to attend a Tax Seminar on E-Commerce Policy. Here the Directorate General of Taxes will formulate a tax policy regarding e-commerce activities and will require a registration system for all e-commerce companies. The spirit promoted by the government is that due to the high number of transactions in e-commerce, it is appropriate to apply the same tax between offline and online transactions.

AUSAID, the Australian aid fund, conducted a study on the e-commerce policies of the Ministry of Industry and they tried to help provide input on whether these policies are in line with industrial development and have taken into account the input of Indonesian e-commerce stakeholders.

Dailysocial and TechinAsia, two Internet media sent emails about how I think about the Indonesian government's policy that e-commerce is on the negative investment list for foreign investors. After I read the reference pointed, I did not find the same conclusion. So I suggest to study and confirm with BKPM before drawing conclusions on your own.

What concerns me is that many e-commerce issues arise but there is no holistic perspective on industry development before talking about policy.

Let's start by looking at who the perpetrators of e-commerce in Indonesia are. The majority of transactions carried out in the online world originate from Facebook, Blackberry or between users of sites such as Kaskus, Tokopedia, and Tokobagus. In the offline world, the analogy is transactions made between friends, transactions at market stalls and also roadside transactions with street vendors or transactions from us seeing classified ads in Pos Kota and Kompas. This informal transaction dominates the Internet world.

The next transaction we do when buying goods from online retailers such as Bhinneka, Lazada, Zalora, Blibli, Gramedia.com. The analogy in the offline world is that we buy goods from electronic stores such as Electronic City, bookstores such as Gramedia or clothing stores such as Matahari. This type of transaction involves a company that clearly positions itself as a formal retailer.

Among retailers, we know the traditional market and the modern market. Traditional markets have a big role in buying and selling goods, just like modern markets. Traditional organic growing markets have now been followed by the growth of modern markets which are growing with the presence of large capital. The same trend I see in the online world, that informal transactions between communities and individuals are now starting to be followed by transactions by online retailers.

What is expected by the government is to impose taxes on all online transactions, both formal and informal. Formal retailers are much more tracked for their transactions because business people are companies that are willing to conduct transactions openly. For non-formal transactions, transactions are difficult to detect because they are carried out through various mediums, either online, email, telephone or even face-to-face meetings. This is the same as trying to tax transactions between arisan women, street vendors and buying and selling transactions made after seeing classified ads in newspapers.

Tax or Palak?

Indonesia is a country that is strong enough to withstand the turmoil of the world macro economy. This happens because Indonesia's domestic consumption is very large compared to foreign trade. Government revenue rely heavily on domestic taxes rather than foreign trade transactions. Domestic taxes contribute more than 70% of state revenue. This makes the government very aggressive in implementing tax policies. It is proven that government revenue in terms of taxes grew more than 2x from 2007 to 2013.

For entrepreneurs, taxes are costs that will burden consumers and sellers, so in this case the more aggressive the government is in implementing tax policies, the higher transaction costs will be. Although entrepreneurs understand that taxes are a must, as a component of costs, taxes are things that should be saved. This difference in interests really needs to be considered by the government, because if you only think of one-sided interests, it is not conducive to the industrial climate and high-cost economy.

The e-commerce industry is starting to get traction-in 2011, when Internet users reached 20% of the total population of Indonesia. This development was followed by financial service providers such as payment gateways and banks which began to enter the world of e-commerce in 2012. In 2013, shipping and logistics service providers began to focus on the e-commerce industry. So all the supporting components of e-commerce are complete and will provide convenience to buyers. The e-commerce industry is similar to a baby growing healthy without being breastfed by anyone.

The challenge that emerged was even the issue of government policies on e-commerce began to emerge in 2013 because the government saw new land for tax revenue sources. This is like a parent who sees this healthy baby and is now getting ready to ask for milk from this baby.

The question AUSAID asked me was whether I would like to help formulate a policy for Indonesian e-commerce and whether the person appointed to make this policy was the right one. My answer to the first one is that I am NOT INTERESTED in getting involved in the process of making this policy. I am an entrepreneur, not a policy maker. The second is that whoever is appointed to make policy is of no use if the spirit is to seek to benefit from industry rather than how to build industry.

Like Mr. Ogah, who never builds roads, but always becomes a beggar at the conspiracy because he feels it is his right, that's the perception I get from the spirit of taxing the e-commerce industry.

In my opinion, what should be done first is to create a digital industry road map. What big vision does the government have for this industry and how will it achieve this vision. Entrepreneurs like me will be happy to provide input on what Indonesia can achieve with government support. Indonesia has no shortage of intelligent and visionary people. Movement Diaspora which has been initiated in the last 2 years proves that Indonesia has many superior people who are ready to build this country.

In the New Order regime, we know the 30-year Repelita, in which after 30 years Indonesia will take off. The government, which in this case is represented by the Ministries of Industry, Trade, Communications and Information and Taxation, in my opinion, does not yet have a holistic industrial design that will provide opportunities for e-commerce babies to grow into adults and then contribute to state revenues. Until now I have not seen any initiative to design a digital industry road map that will grow this industry significantly.

When there is an industry road map, I'm sure there will be a lot of participation from all over stakeholder to be able to build this industry together. The policies that emerge must have a conducive spirit to build industry and entrepreneurs also don't mind making contributions back from their sweat for taxes. The government needs to show what concrete contribution it makes to industrial development before imposing taxes.

I don't know how the government will start taxing transactions online. What I propose is to impose a final tax on transactions through payment and/or delivery services. A concrete example is credit cards apply 2%-3% of transactions. Their contribution is clear, payments are made easily and the seller doesn't mind adding this in the transaction fee component.

Official payment services provided by financial services currently require all online sellers to have a PT and NPWP, even though the majority of transactions are carried out between consumers, not all of which have these features. This requirement does not make it easier but even complicates the transaction process. With the final tax, the government can benefit from this e-commerce transaction without disturbing the non-formal transaction ecosystem that is growing organically.

In addition, what must be prepared is an investment policy. Small e-commerce players find it difficult to reach capital because they often do not have collateral that can be used as collateral to bank as business capital. Pattern angel investing and venture capital become an attractive alternative for small industry players because what is exchanged by entrepreneurs is the company's equity value. The problem that arises here is that the PT law does not recognize the valuation of intellectual property rights, so if there is an injection of funds by investors it will be difficult to justify because the company's valuation is forced to use the paid-in capital basis. This is very much in favor of capital owners and not in favor of entrepreneurs.

In terms of investment, there are not many alternative funding that can encourage investment in the digital industry, therefore there needs to be a policy so that small entrepreneurs can get investment from angel investment and venture capital without the shadow of a negative investment list. The existence of opportunities that are open for investors to resell their equity to other institutions requires legal and regulatory tools that are inclusive of both local and international investors.

The e-commerce industry needs a visionary leader, not a dreamer. We need wise leaders, not crooks!

[Photo illustration from Shutterstock]