Aligning Taxation on Peer-to-Peer-Lending Business with Taxation on Digital Economy in Indonesia

This article seeks to expose the paradox in tax collection on digital services in Indonesia. On the one hand, the Indonesian government has been keen to ensure that multinational enterprises pay their fair share of taxes in the state. This is done by, inter alia, imposing VAT on digital services consumed within the jurisdiction, and the pending imposition of direct tax on electronic transaction. On the other hand, findings of this article show that potential taxation on peer-to-peer lending business seems to be neglected for unclear reasons. As of June 2021, the Indonesian Financial Services Authorities, OJK, reveals that the business has gathered more than 120 registered operators with a three-year-span national and foreign accumulated fund provided by lender amounting to more than IDR 210,000 billion (circa USD 14 billion). This serves as a good reason to ensure that tax obligations are fully complied with. While taxation of this business may rely on the general income tax and VAT regime, the lack of regulation means that a level playing field for digital services corporations generating profit in Indonesia is not ensured. In order to optimize the potential revenue from the business, a rigorous yet simple tax regime must be in place.