Indonesia's new tax rule may force eCommerce brands to rethink their future

Indonesia’s latest move to collect more tax from its digital economy is being hailed by policymakers as a leap toward fairness and fiscal strength. But for sellers and platforms in the country’s booming eCommerce ecosystem, the rule brings tough questions about margins, compliance costs, and the risks of fragmentation.

Under PMK 37/2025, eCommerce platforms are now required to withhold income tax on behalf of sellers, applying a final 0.5% levy on annual gross revenue between IDR 500 million (US$31,000) and IDR 4.8 billion (US$295,000). Though seemingly small, the rule is reverberating across the sector as stakeholders reckon with the uneven realities of its implementation.

For mid-sized sellers operating on tight margins, the 0.5% tax could bite. As Jianggan Li, founder and CEO of tech insights firm Momentum Works, explains, the regulation may “dampen the growth momentum, especially for mid-sized sellers who are yet to enjoy the economies of scale.”

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The nature of the tax - levied on gross revenue rather than net income - draws concern. Joel Shen, head of tech at law firm Withers, describes it as a “regressive tax,” noting that “it is a disadvantage for small sellers” particularly those selling commoditised products with thin margins. “If the guy makes a 5% profit margin on his sale of clothes online, a 0.5% tax on gross revenue means that you are reducing his profit by 10%.”

The burden becomes even clearer when considering the narrow bands within which sellers operate. While the regulation sets a unified threshold, the effect will vary depending on where they fall within that range. 

Cost hikes, platform pressure, and tripartite dynamics

Beyond sellers, platforms themselves are now directly in the government’s compliance crosshairs.

“Now you’re going to have to put together the capability, the teams, the functionality that allows you to withhold tax and to pay it to the government,” Shen told MARKETING-INTERACTIVE, adding that eCommerce platforms may view this additional cost with concern.

Platforms must now navigate a tangle of new responsibilities: software upgrades, regulatory reporting, customer support, and even audits. While platforms are not tax advisors, they will find themselves on the frontlines of implementation. When asked whether platforms would take steps to educate sellers or offer support, Shen said any support will likely be reactive - triggered by seller feedback.

Arles Parulian Ompusunggu, managing partner at accounting firm Solusi Akuntansi Konsultama, believes this reality makes a tripartite collaboration essential. “There needs to be a mutually beneficial relationship between platforms, sellers, and the tax office,” he said, advocating for incentives to help platforms shoulder their new administrative burden. A model, he suggests, could include financial rewards based on how effective platforms are in collecting tax.

Will prices rise or margins fall?

A looming question is whether sellers will pass this cost to consumers, or quietly absorb the blow.

“There will be an upward pressure on price because sellers are now squeezed,” Shen said. However, whether that translates to higher checkout totals is “a question that goes to the heart of seller psychology.” Larger players with more cushion may keep prices steady for competitive advantage, while smaller sellers could be forced to increase prices or retreat from platforms altogether.

Li offers a similar forecast: “Some sellers might try to pass the cost onto consumers, but how much they can do so depends on the competitive intensity in their category. In more commoditised segments, sellers may be forced to absorb the cost or exit.”

Sellers may scatter - but to where?

A migration to alternative channels is already being speculated. Sellers may start doing live streaming to avoid the tax programme, Shen explained.

Although to be fair, moving to TikTok isn’t exactly a free pass either - live commerce comes with its own set of evolving rules and headaches. And unlike traditional online selling, live commerce often demands more time, on-camera presence, and unpredictable returns.

As Shen underscored, “If the regulation is too tough and impossible to comply with… you push them outside of your sphere of regulation.” While it’s unlikely that sellers will band together to build entirely new platforms, he warns that human ingenuity will find ways to slip outside regulatory reach - until the rules catch up again.

Li noted that while some offline retailers expanding into eCommerce may refocus on brick-and-mortar, a broad shift back offline is unlikely.

Execution is everything

Even the best policy means little if systems break down. Shen points to Indonesia’s troubled online tax rollout, which faced technical glitches and led to substantial losses.

Earlier this year, Indonesia’s tax office rolled out its new “core tax” system to enhance compliance, but data mismatches and service disruptions forced a temporary return to the older platform. 

As of May 2025, Indonesia’s tax revenue collection has fallen short, reaching only 31.2% of its annual target. The government collected IDR 683.3 trillion (US$41.8 billion) in net tax revenue between January and May, down 10.1% from the same period last year.

Shen acknowledged that Indonesia’s policy rollouts - particularly in technology - have occasionally faced hurdles. He cautions that platforms will now be managing not only merchant and user data but also tax information, introducing a new layer of sensitivity that demands strong cybersecurity and seamless backend integration.

There’s reason for optimism, Shen suggested. If platforms such as Tokopedia, Bukalapak, and Shopee can pull off a seamless rollout - using technology to lift tax revenues without burdening users or bottom lines - it could mark a meaningful win for Indonesia.

Ompusunggu concured: “Building a digital system like this can’t be judged as a success or failure overnight.” For him, success depends not only on infrastructure but also public education, accurate seller data, and behaviour shifts among both sellers and consumers.

The broader fiscal context

The rule is just one part of a larger push by President Prabowo Subianto, who has vowed to double Indonesia’s tax-to-GDP ratio from 12% to 23% without raising tax rates. Shen said the president had pledged to improve tax collection through the use of technology, and this regulation appeared to be one of the manifestations of that commitment.

Indonesia’s tax authority is also ramping up the use of social media monitoring to boost tax compliance, with plans to strengthen this approach in 2026. Using a “crawling” system, it scans platforms for signs of undeclared wealth - such as luxury items or endorsements - and cross-checks this against official tax data. If discrepancies arise, officials may issue warnings or provide taxpayer education.

Indeed, while the principle of platform withholding is not new - employers already do it with wages - its extension to fragmented, informal eCommerce ecosystems is ambitious.

Whether this becomes a case study in seamless tax modernisation or another chapter in Indonesia’s patchy digital regulation history will depend on execution. For now, sellers will watch margins, platforms will juggle costs, and regulators must walk the tightrope between ambition and accessibility.

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