Minister of Trade Regulation No. 31 of 2023 Limits the Role of Social Media in Transactions and Payments

The frenzy of banning TikTok Shops in Indonesia resulted in the hammer blow of Minister of Trade Regulation no. 31 of 2023 concerning Business Licensing, Advertising, Guidance and Supervision of Business Actors in Trading Through Electronic Systems (PMSE), which is a revision of Minister of Trade Regulation no. 50 of 2020.

This rule at once ensure social media is only permitted to facilitate the promotion of goods or services, not as a place to carry out online buying and selling transactions.

The revision of this regulation was driven by a number of factors, including (1) goods traded on the PMSE platform do not meet standards, (2) there are indications of unhealthy trading practices by overseas business actors who sell at very cheap prices, (3) the competitiveness of MSMEs and domestic products are still weak, (4) business competition and a healthy PMSE ecosystem have not yet been realized, and (5) PMSE business models have emerged that have the potential to disrupt the PMSE ecosystem by utilizing social media and/or information.

"The aim is to create a fair, healthy and beneficial e-commerce ecosystem by paying attention to dynamic technological developments. Supporting the empowerment of MSMEs and trading businesses through domestic electronic systems, as well as increasing consumer protection," said a written statement by the Ministry of Trade.

Rule social commerce

The Ministry of Trade summarizes several main points regulated in Minister of Trade Regulation no. 31 of 2023, especially the article which clearly regulates social commerce.

• Article 1 Paragraph 17 state social commerce is a social media organizer that provides certain features, menus and/or facilities that enable traders (merchant) can place offers for goods and/or services.
• Article 21 Paragraph 2 declares Trading Operators via Electronic Systems (PPMSE) with a market-based business model (marketplace) and/or social commerce prohibited from acting as a producer in accordance with the provisions of laws and regulations in the field of distribution of goods.
• Article 21 Paragraph 3 states PPMSE with a business model social commerce prohibited from facilitating payment transactions on its electronic system.
• Article 13 Paragraph 3 regulates the absence of connection or interconnection between electronic systems used as PMSE facilities and electronic systems used outside PMSE facilities; and there is no abuse of control over user data for use by PPMSE and/or affiliated companies in its electronic system.
• Article 19 Paragraph 2 regulates the minimum price of USD 100 per unit for finished goods from overseas which are directly sold by traders to Indonesia via the platform e-commerce.

apart social commerce, the government also added several points of regulation for platforms E-commerce related to sales and purchase transactions of goods from abroad which include:

• Related provisions positivelist or a list of goods from abroad that are allowed to enter Indonesia directly via the platform E-commerce that facilitate cross-border trade (cross border).
• Obligations for traders and platforms E-commerce to display and trade proof of compliance with standardization of goods including (a) goods registration number/Indonesian national standard certificate/other technical requirements for goods and/or services to which the Indonesian National Standard has been applied; (B) halal certificate number for goods and/or services that must be halal certified; (C) security, safety, health and environmental goods registration numbers for required goods; And (D) permit number, registration number or certificate number for cosmetic, drug and food products.

TikTok Shop

Prohibition of social media to facilitate transactions and payments E-commerce clearly reap the pros and cons. The government argues that this ban is possible protect business actors domestic. Following the issuance of Minister of Trade Regulation no. 31 of 2023, the government stated that it would provide guidance to business actors to encourage competitiveness, for example through MSME training and synergy for all related parties.

Meanwhile, for a number of parties, the TikTok Shop ban has the potential to reduce the source of income for millions of sellers on the platform. TikTok has a user base of more than 100 million in Indonesia. Throughout 2022, TikTok Shop is reported to have received GMV transactions of $4,4 billion, a 4x increase from the previous year.

Purchase interest on this platform from China is said to be driven by TikTok's powerful algorithm which can display search results presenting content based on user interests. In addition, TikTok Shop offers easy transactions and low price promotions, triggering high levels of purchase transactions for goods, especially those of a impulsive buying.

Apart from TikTok Shop, other social media that offers similar services are Instagram Shop and Facebook Marketplace. Service presence social commerce on social media it is considered that it has the potential to disrupt the PMSE ecosystem.