publications

Part 6: Reformation in Indonesia’s E-Commerce Ecosystems

By : Riza Buditomo; Muhammad Ramzi; Devi Mutia Alisa

13-Oct-2023

Download: Reformation in Indonesia’s E-Commerce Ecosystems

I. In Brief

Continuing the discussion in our Part III newsletter (which can be found here), the Minister of Trade (“MOT”) has issued MOT Regulation No. 31 of 2023 on the Provisions for Business Licensing, Advertising, Supervision, and Oversight of Business Entities Engaged in Electronic Commerce (“MOT Reg. 31”).

For context, MOT Reg. 31 replaced MOT Regulation No. 50 of 2020 on Requirements of Business Licensing, Advertisement, Development, and Supervision of Business Actors in Trading Through Electronic Systems ("MOT Reg. 50").

Coming into force on 25 September 2023, MOT Reg 31 introduces new provisions that could significantly impact and influence e-commerce ecosystem in Indonesia.

II. Key Takeaways

We set below the key takeaway from MOT Reg. 31, which, in our view, may play a critical role in the development of e-commerce in Indonesia.

1. Additional threshold requirement for the mandatory of having a local present for foreign merchants

   MOT Reg. 31 adds one threshold (from previously only two thresholds) for foreign e-commerce that must establish an e-commerce foreign trade representative office ("E-Commerce FTRO") in Indonesia. Currently, foreign merchants are required to establish an E-Commerce FTRO, if the online trading platform satisfies any of the following thresholds.

   • Conducts more than 1,000 transactions for Indonesian consumers annually
   • Delivers more than 1,000 packages to consumers in Indonesia annually
   • Have traffic or access of at least 1% (one percent) of domestic (Indonesia) internet users annually

   To date, we understand that MOT is only monitoring and allowing foreign entities to voluntarily establish an E-Commerce FTRO depending on their self-assessment. In the future, MOT might coordinate with other relevant authorities (e.g., Minister of Communication and Informatics and Customs Authority) to determine the eligibility of foreign merchant in relation to their obligation to establish E-Commerce FTRO, and MOT might enforce sanctions to any eligible foreign entity that does not have an E-Commerce FTRO in Indonesia, e.g., blocking access to foreign merchants' websites.

2. Imposition of a minimum sales price for foreign merchants in cross-border trading

   Per MOT Reg. 31, e-commerce merchants selling finished goods to Indonesia must ensure a minimum FOB price of $100 per unit. If goods are declared in a different currency, they must be converted using the exchange rate set by Minister of Finance (“MOF”).

   Meeting the minimum price requirement is crucial. Failure to comply may result in administrative sanctions, such as a warning letter, access blocking to the trading platform, and business license revocation.

   According to MOT Reg. 31, foreign merchants may still trade certain goods at prices below the minimum price, subject to MOT's approval. However, there is no information available about which goods are eligible for this exception. As e-commerce activities continue to develop in Indonesia following the implementation of MOT Reg. 31, we anticipate that MOT will establish guidelines for the types of goods that foreign merchants can trade at prices below the minimum.

   In addition, as this is the new provision provided by MOT Reg. 31, we have not yet seen any enforcement from the MOT regarding this mandatory minimum price requirement.

3. Licensing and Taxation Unification

   Following the rapid growth of e-commerce activity in Indonesia, through MOT Reg. 31, the government expanded and specified the category of e-commerce activities (e.g., marketplaces, retail online, social commerce). Each type of e-commerce activity has specific requirements, obligations, and limitations within the business lines and licenses, technical standards for goods and services traded, and taxation. For examples under MOT Reg. 31:

   • Business actors must have the relevant risk-based business license in the trade sector.
   • Marketplaces and social commerce platforms are restricted by MOT Reg. 31 from manufacturing their own products.
   • Social commerce is not permitted to conduct commercial transactions within their electronic systems. As a result, social commerce platforms (such as social media) can only promote goods and/or services and cannot directly facilitate transactions.

III. Impact and Development 

MOT Reg. 31 was created to accommodate national interest in standardizing e-commerce businesses in Indonesia and protect the local market. The regulations set out in MOT Reg. 31 are expected to impact business operators directly. This includes but is not limited to, ensuring compliance with regulatory standards and promoting fair competition in the marketplace.

For instance, the impact that can be given by MOT Reg. 31 are as follows:

• The alignment of the e-commerce business licensing treatment with a risk-based business license gives clarity for e-commerce business actors in obtaining business licenses.
• Restricting marketplace and social commerce platforms from acting as producers can prevent unfair business competition, such as predatory pricing.
• Imposing a minimum sales price for foreign merchants may prevent the entry of underpriced imported products that could disrupt the sustainability of micro, small, and medium-sized enterprises (UMKM)

Considering that the objective to be achieved by this e-commerce sector reform is national interest, it is imperative to note that in order to achieve it, the involvement of other authorities is necessary. To date, MOF has already joined the force by issuing MOF Regulation No. 96 on the Provisions on Customs, Excise, and Tax for Import Couriers ("MOF Reg. 96"). In its principle, MOF Reg. 96 is connected with MOT Reg. 31 by providing a supervisory function over the implementation of e-commerce business (especially, cross border e-commerce) from a customs perspective. We will discuss MOF Reg. 96 in a separate newsletter.

MOT Reg. 31 is still in its early stages of implementation, and as of now, we have not seen any enforcement from MOT concerning the supervisory and imposition of penalties for the violation of its provisions. However, it is vital for all stakeholders, such as foreign merchants, local businesses, and consumers, to stay informed and be prepared for any potential impacts on their operations.

 

More information:

We are committed to providing valuable insights and analysis so you can make informed decisions in this ever-changing business landscape. If you need more information regarding the matter, don't hesitate to reach out to us using the contact information below.

For more details, please click the link below.

Part 6: Reformation in Indonesia’s E-Commerce Ecosystems

 

Riza Buditomo - Partner

riza.buditomo@aymp.law

+62815-911-0720

 

Muhammad Ramzi – Associate/Trade Specialist

ramzi@aymp.law

+62856-3212-629

 

Devi Mutia Alissa – Associate

devi@aymp.law

+62857-7045-5782

Share