Facts About Digital Marketplace as Income Tax Collection Agent

By: Sondang Romian Purba, officer in  Directorate General of Taxes

In this midyear, Indonesian government issued Minister of Finance Regulation Number 37 of 2025 on The Appointment of Other Parties as The Income Tax Collector and The Procedure of Tax Collection, Remittance, and Reporting on The Income Earned by Domestic Merchant from Electronic Transactions (PMK 37/2025). It appoints e-commerce platform to collect article 22 income tax at 0.5% rate on the domestic merchants’ turnover.

The mechanism is not a new idea. Despite its effective enactment date on July through the issuance of PMK 37/2025 took effect on July 14 this year, the idea was way longer before that. The regulation is the government’s response to Indonesia’s large population with rising internet usage and the utilization of financial technology to boost the online transactions.

It is once seen as a small niche, but now the online transaction is playing a big part. To some extent, it is even leading the worldwide transactions. Currently, most offline stores have their own online stores in the digital marketplace as well. That’s why the e-commerce platform can play a big role in helping the government in collecting tax revenue. Unfortunately, there are still some misconceptions about the regulation. It then triggers the government to put an extra effort to socialize this regulation massively.

Level Playing Field

Nowadays, having no physical store is not such an issue since the information technology advancement solves the time and place barrier. Consumers can have whatever they want by the tip of their fingers, and get their favorites and needs right here right now. Seeing the way the online markets develop, government’s intervention is needed to create a level playing field for online and offline business players. It is intended to make sure that all taxpayers fulfil their tax obligations.

Without the physical presence, the economic activities operating outside the tax – shadow economy – continuously rise up. It impacts the detection of the transactions. Shadow economy is challenging to be detected or tracked by tax authority. The complexness and the variety of online transactions in the digital marketplace are the backgrounds. Therefore, the simplicity served by the design of PMK 37/2025 becomes the solution that hopefully can be effective and efficient to overcome the challenge. It surely needs some adjustment.

Tax Administration Simplification

From the government’s point of view, by issuing PMK 37/2025, the government intends to boost tax compliance among online merchants. This new regulation also gives the benefits for the merchants. It simplifies the administrative tax collecting mechanism and automate the process that will support a tax compliant digital ecosystem. It will be easier for them, especially for the digital micro, small, and medium enterprises who often find tax administration is burdensome. 

In the beginning of the issuance of the regulation, it drew much attention from public including merchants and consumers, prompting many ungrounded interpretations. There was misconception saying that shoppers will have to pay more or merchants will have to pay more. Well, rest assured, it is not.  To avoid a confusion, there are few facts that public should keep in mind when it comes to understand the PMK 37/2025.

Facts About PMK 37/2025

This is not a new tax.  The actor who is paying the tax is still the same, that is the merchant. The tax is still imposed to the merchant. It does not become the burden of the consumer. The tax rate is still the same, i.e., 0.5% on the turnover and it can be accounted in the annual tax report by the merchant. Moreover, there is no new document needed, because the invoice is treated as withholding tax slip.

This regulation only alters the tax collection mechanism. Previously, the tax was paid by the merchant on the self-assessment base. From now on, the 0.5% income tax will be collected by e-commerce platform or electronic-system-based trade providers (PPMSE).

This regulation is micro, small, and medium enterprises friendly. It is still in line with Government Regulation Number 55 of 2022 on The Adjustment of Income Tax Regulation. It states clearly that e-commerce platforms are obliged to withhold income tax from merchants whose annual turnover exceeds Rp500 million. The merchants with annual turnover under Rp500 million don’t have to pay the tax. To get this exemption, they need to report to the e-commerce platform.  For the micro, small, and medium enterprises, the regulation stipulates that they must regularly submit their data to make the digital platform sure that their annual turnover is still under Rp500 million. Take notes that this amount includes all the merchants’ transactions (both online and offline) in all platforms.

We also have to take notes for some important points. The regulation gives several exemptions. There are some transactions that are excluded from tax collection conducted by PPMSEs: 1) online-applications-based delivery services (the drivers are considered as partners to the merchants); 2) transactions covered by income tax exemptions certificate; 3) sale of phone credit; 4) sale of gold jewelry and gold bullion; and/or 5) sale of land and/or building.

Those transactions are excluded since they have been taxed according to the specific regulations. It shows that there is no overlapping provision in the implementation of PMK 37/2025 with any other regulations. As for the digital marketplace, the regulation mentions that there are some requirements that must be met to be appointed to collect the withholding tax from its merchant. A new director general of taxes will be issued soon to give more details.

For consumers, we can go to our trusted e-commerce platform. Enjoy the ease of putting our favorite target item to the basket with confidence and pride. Acknowledge that we buy stuffs legally and we are helping the economic cycle by doing this online shopping. What a fun way to participate in Indonesian citizenship life, rite?

*)This article represents the personal opinion of the author and does not reflect the official stance of the institution where the author works.

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