March 7, 2024
JAKARTA – Indonesia has claimed that the World Trade Organization moratorium on e-commerce tariffs will not be extended beyond the agreed deal, hoping that this will finally end years of tax breaks enjoyed by foreign tech companies, which firms have warned would also hurt consumer in the process.
The moratorium was set to expire on March 31 if WTO members do not unanimously agree on its renewal, but Indonesia, like all other members of the organization, opted to extend it until the 14th Session of the Ministerial Conference (MC14) or March 2026, whichever is earlier, during a conference held on March 1.
Experts say the decision is a compromise, as it moves the country closer to an end to many years of duty-free e-commerce but accommodates calls from several countries behind foreign big tech companies that want it to remain in place or even to become a permanent policy.
“There’s no [moratorium] beyond that. So, there’ll be no talk of further extensions,” Djatmiko Bris Witjaksono, Indonesian delegation for the WTO’s 13th ministerial conference (MC13), said in a press briefing on Tuesday.
The moratorium bars countries from levying import duties on digital products and was first launched in 1998.
Jakarta has become one of the prominent WTO members seeking to supplant the so-called customs duties on electronic transmissions (CDET) moratorium since 2017.
It argued that the moratorium tends to benefit only developed countries, while developing countries lose billions of dollars of potential revenue.
The government also believes that the duties would help local software developers and content providers compete with global giants.
So far, Indonesia is the only country with a regulation in place to allow for the imposition of duties on digital goods. The country does not currently have any tariff on such goods in order to comply with the consensus.
The regulation recognizes electronically transmitted goods like software, music, books or video games as those could be subjected to the import duty.
Even though Jakarta could easily disagree so that no consensus is reached, Djatmiko said that Indonesia “was delivering its voice in a constructive manner”, implying that a non-consensus outcome is counterproductive.
“We agreed that many countries need room to prepare for the termination of this moratorium. Indonesia and some other countries may be ready, but we must pay attention to other countries’ preparedness,” Djatmiko explained.
Prior to the meeting, the International Chamber of Commerce (ICC) and the Asia Internet Coalition (AIC) warned that ending the moratorium could risk each country’s digital and overall economy.
The AIC told The Jakarta Post on Jan. 30 that if the moratorium ends, these extra costs will likely be passed on to consumers, including local, small and emerging enterprise businesses, adding that it could negatively impact business productivity, innovation, national competitiveness and job creation.
Meanwhile, the ICC told the Post on Jan. 19 that Jakarta’s motivation might be a financial one, as the moratorium made the government lose out on potential revenue, but it asserted that there was no evidence that the additional revenue collected would be of sufficient value to make any difference.
Lydia Ruddy, managing director of the American Chamber of Commerce in Indonesia, told the Post on Tuesday that imposing duties on digital goods “doesn’t sound like a good idea” and the imposition of tariffs “would be bad for business across the board”.
“I think there is a level playing field [without the taxes]. It’s fair competition across the board. So, imposing taxes, that’s creating an unlevel playing field,” said Ruddy, implying it could contradict what the government is trying to achieve.
Center of Reform on Economics (CORE) executive director Mohammad Faisal told the Post on Tuesday that Indonesia’s move to uproot the CDET moratorium was good for developing the domestic digital industry if the government had a clear road map.
Apart from bringing in extra state revenue, if done well, it could stimulate the domestic industry to stand on its own feet by ensuring a level playing field against its foreign counterparts.
However, Faisal cautioned that applying levies to digital products could be a double-edged sword depending on the specific products receiving the levy, stressing why the country needs a clear road map for domestic digital industry development.
For instance, digital books were one of the goods that Faisal said should not receive any duty, as the transfer of knowledge is nothing but helpful.
Faisal also suggested that the government refrain from imposing duties on advanced digital products as the country does not yet have the capacity to build on its own, citing risks of hindering business activity.