Jakarta okays foreign ownership of e-commerce, gets flak

25 Jan '16
3 min read

The Indonesian government's decision to allow foreigners to own 100 per cent stakes in local e-commerce business and pay a higher income tax rate, has come under flak from critics who say that the policy will threaten local players.

The controversial policy which is scheduled to come into effect by the end of January 2016, is part of an e-commerce roadmap which aims to improve and develop the country's e-commerce industry. The decision is among a slew of government revisions to its negative investment list in a bid to attract more investment into the country.

The booming e-commerce sector was previously closed to foreign investors, but overwhelming interest has persuaded the government to ease its stance, according to media reports.

The policy proposal was originally leaked by Communications and Information Technology Minister Rudiantara before the official announcement of the roadmap. According to the minister the roadmap will allow foreign e-commerce players to have 100 per cent ownership in Indonesian companies.

Foreign companies will potentially have to pay higher tax rates and will be required to invest more than Rp 20 billion. Businesses in Indonesia normally pay 25 per cent income tax on gross profits.

Indonesia's e-commerce roadmap was supposed to be finished and announced at the end of 2015, but additional reviews such as that of the negative investment index (DNI) to exclude e-commerce firms caused delays.

Among the initiatives are measures to minimize job cuts in the transition to the internet economy and the addition of new jobs in the sector. It also tries to underline the priority of securing the development of local SMEs through law revisions among other measures.

Rudiantara had earlier explained that with a proper roadmap, Indonesia would be able to earn up to $130 billion from the industry by the year 2020 if the policies were implemented as soon as January 2016.

The drafting of the roadmap began in December 2014. After one year, the Office of the Coordinating Economic Minister, along with several other related government institutions, agreed on a formal roadmap that aims to benefit and develop the nation's e-commerce industry.

The plan, which is made up of 31 initiatives, aims to develop the country's burgeoning e-commerce industry via various measures, such as the encouragement and promotion of technological skills necessary for e-commerce access for all Indonesians.

The new policy also stipulates the formation of a programme management unit that will coordinate all related ministries and institutions in monitoring the roadmap's progress.

Homegrown e-commerce and market place operators — like Mataharimall.com, Lazada and Tokopedia — are still battling for marketshare in the mammoth, but fragmented, market in Indonesia where global e-commerce majors such as Amazon and Alibaba are yet to establish their presence. (SH)

Fibre2Fashion News Desk - India

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