Building Better Taxation in a Digital World

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As a developing and emerging country, but also a large economy, Indonesia is seeing an amazing transformation driven by digitalization. We all know the digital economy is here to stay and to become even more important over time. We have seen during this pandemic that education, health services, and physical activities across the economy are being transformed. In Indonesia, digital transactions had increased by 25 percent as of July 2020. There is great potential, but we also know that we do not yet have a global agreement on how to treat and tax this digital economy.

Many business communities in my country make a complaint because they are working in a conventional business model – they hire people, they have a store, they have to rent space and then they have to pay tax. While the digital companies, often with no physical presence, are getting more and more sales, but not getting the same treatment on taxation.

Fairness is not only an issue that must be addressed across countries but also within our own economy. We are seeing in all countries – at least those with democratic systems – that unfairness can create dangerous social and political turmoil. And we should not underestimate that.

There is also a question of perception. I am repeatedly asked by the media: “How much tax do you collect from the digital companies?”  Because they are seeing that a very important part of the economy has already been transformed, and there are concerns that this digitalization could lead to the erosion of Indonesia’s tax base.

People are happy about the economic transformation brought about by digital technology, which is seen as efficient and stimulating innovation, but they are also worried about the lack of a level playing field, especially as concerns taxation. 

There is huge pressure on me, as a finance minister. I have been around for quite some time, but the scrutiny and intensity of pressure around this issue at this moment are actually quite unprecedented.

The expectation, and the hope, is that in 2021, under the Italian G20 Presidency, we are going to achieve a historic agreement on international taxation, essentially via the two-pillar solution under discussion in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which brings together 139 jurisdictions on an equal footing. This is going to be particularly important after the pandemic, which is threatening almost all countries’ public finances. Fiscal policy needs to be expansive, but revenue is dropping because of the contracting economy. Finding a sustainable, equitable, and fair source of revenue is critical.

Indonesia will be hosting the G20 Presidency in 2022, so we hope that when an agreement has been achieved this year, we will be able to put the focus looking ahead on implementation. It will be a daunting task, if countries have to deal with implementation on a bilateral basis, with all tax treaty partners. The digital economy is borderless, therefore it needs a multilateral solution. That is why we think a multilateral convention will be critical, and we will work during our Presidency to ensure that is going to be part of the follow-up to any agreement this year. Developing countries’ interests must be taken into account. Solutions must be fair, simple, and easy to implement for everyone. Multilateralism remains the only way forward.

Related Topics

International Co-operation Tax

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Sri Mulyani Indrawati

Minister of Finance, Republic of Indonesia

Sri Mulyani Indrawati is an Indonesian economist, who currently serves as the Minister of Finance of the Republic of Indonesia, a position she has held since July 2016. She returned to this role after serving as the World Bank's Managing Director and Chief Operating Officer, where she was responsible for the Bank's operations around the world. In this capacity, Sri Mulyani often represented the World Bank Group at the G20. She also chaired the International Development Association (IDA)− the World Bank's fund for the poorest countries. Sri Mulyani concurrently chairs the Development Committee− a ministerial-level forum of the World Bank Group and the International Monetary Fund for intergovernmental consensus-building on development issues. Prior to joining the World Bank in 2010, she served as the Minister of Finance of the Republic of Indonesia from 2005 to 2010, in addition to being the Coordinating Minister of Economic Affairs from 2008 to 2009. She was also the Minister of National Development Planning from 2004 to 2005.

Comments

Economista Sri Mulyani, la saludo cordialmente, referente al 3er. párrafo,  lo que usted indica es una gran verdad, sobre la injusticia o el atropello a las normas de quienes tienen que declarar sus impuestos, el no hacerlo ó hacerlo a medias tiene un efecto al erario nacional, las arcas fiscales el presupuesto no se cumple, por lo tanto el ministerio de Finanzas no puede atender ó cumplir con todos los programas de carácter social para el país, entonces los gobiernos tienen tomar  estrictas medidas de control, es muy importante  todo lo que se viene implementando con los sistemas integrados de informática, esto es de gran ayuda para que todas las actividades mercantiles colaboren con el país pagando sus impuestos de forma correcta.  Gracias por su atención.