E – Commerce Law in Indonesia

By: A.M Oktarina Counsellor at Law

Drafted by: BaniadhipatiNandiwardhanaPasaribu

Reviewed by: Noverisky Tri Putra Pasaribu, S.H., LL.M (Adv).

As technology and electronic system has grown exponentially in recent decade, so does the trade system in all over the world. In this globally connected world, the interaction between individuals across borders are inevitable, thanks to the Internet the world has become borderless. With the increase of interaction of people all over the world, trade would also increases which makes the rise of the e – commerce, the electronic commerce has been an important form of trade especially in recent decades, the needs of fast, simple, and efficient system of trade has become a most fundamental characteristics in this 21^st Century development.

By definition, e – commerce can be referred to as buying and selling of goods or services with Internet as the medium or according to Article 1 (24) of Law No. 7 of 2014 on Trade, e – commerce can be define as “Trade through Electronic Systems is a trade transactions conducted through a series of devices and electronic procedures.”[1] Further, as retrieved from HG Legal, E – Commerce  uses a combination of Internet technology, mobile commerce, electronic funds transfers, escrowing services, electronic data interchange, supply chain management, inventory management systems, Internet marketing, data collection systems, and many other technologies and innovative business systems.[2]

As mentioned earlier,  the government needs to keep up with the rapid technological development in the recent centuries has become vital in order to regulate and facilitate the development, especially in the growing market of e – commerce, therefore, in 2019 the Indonesian Government issued Governmental Regulation No. 80 of 2019 concerning Trade Through Electronic Systems (PMSE), this regulation is the continuation of implementation regarding the Article 66 of Law No. 7 of 2014 on Trade. This regulation will govern the e – commerce, marketplace, and electronics retail, which would become the answer to the industry that has been growing exponentially in the past decades.

The Governmental Regulation No. 80 of 2019 will govern issues regarding the operations, parties within the e – commerce systems, personal data protections, electronics transactions and payment, dispute settlements, and etc. In the regulation regarding parties, in Article 4 (1) it is stated that electronic transaction can be done by Business Actors, Consumers, Individuals, and Governmental Bodies in accordance with related provisions, further in Article 4 (2) it mentioned that PMSEis a private law relationship between Businesses with Businesses, Businesses with Consumers, Individuals with Individuals, Businesses to Governmental Bodies. As retrieved from ASEAN Briefing, the term “Businesses” should be divided into 3 (three) categories[3]:

1. Merchants, a business entities or individuals who conduct electronic system trade which they own or manage directly or through a third party. Merchant in this context also includes the Individual who sells their second-hand goods in e – commerce market.
2. E – Commerce Providers, a business entity, individuals, or governmental bodies that provide facilities or business models that conducting e – commerce transactions.
3. Intermediary service providers, a business entities or individuals that provide search engine services, hosting services, or caching services.

By this elaboration, the stakeholders within the industry of e – commerce are acknowledge by law, and therefore, their rights and obligations are protected by the state. Another new provisions that were added to the Governmental Regulation No. 80 of 2019 are the elaboration or acknowledgement of foreign businesses in Indonesian e – commerce industry. The definition of Foreign Businesses is stated in Article 1 (8) namely: “A foreign citizens or foreign entity, established and domiciled outside the Indonesian jurisdiction which conducts business activities in PMSE in the territory of Indonesia”[4]Further, in Article 7 it is emphasized that Foreign Businesses that are actively conducting business or PMSE to consumers that are domiciled within the jurisdiction of Indonesia which have meets the specified criteria or significant economic presence are deemed to be physically present in Indonesia,the Foreign Businesses shall appoint a representative in Indonesia to act on its behalfif they already meets the specified criteriaand they shall adhere to Indonesian Tax Regulations. Interestingly, the Article 12 of the GR states that all businesses, whether domestic businesses or foreign business shall obliged to assist the Government of prioritizing trade in goods and services of domestic products; improve the competitiveness of goods and services of domestic products; protect the national interests.

The “specified criteria” which mentioned earlier are:

1. Reach a certain number of transaction volumes;
2. Achieve certain transaction values;
3. Achieved a certain volume of packages shipped; and
4. Achieve a certain volume of traffic accessing who accesses the businesses platform.[5]

In Article 15 of the GR, it stated that all business that engage in the field of PMSE are required to have business license in order to carry out their activities in e – commerce.This license are required to all PMSE business stakeholders including an individual or an entity. The licence could be obtained using the Online Single Submission System or OSS, however, this requirements will be affecting the development of UMKM in e – commerce industry. An Intermediary service providers, if they are not directly benefitted from a PMSE transaction or directly involved in a relation with the stakeholders of PMSE are excluded from business licence requirement.[6]As the Governmental Regulation No. 80 of 2019 were enacted, all businesses within the field of e – commerce shall adhere to prevalent regulations regarding income tax, this means that all online sellers, whether a small, medium, or large companies have the obligation to pay taxes. In the context of small or medium online businesses, they must pay 0.5% in income tax, while large companies pay 25% corporate tax rate.[7]

Regarding the Consumer Protection mechanism, the GR stated in Article 18 that: Consumers who suffer from losses are able to report such losses to relevant ministries; the business entity that allegedly caused losses to the consumers shall resolve the issue written in the report; if such business entity does not respond or resolve the complaint filed by the consumers, they will be included in the watch list of the relevant ministry.[8] The protection of personal data are also stated in the GR, pursuant to Chapter XI of the GR, it stated that business entity shall store personal data accordingly to the standards for personal data protection, the standards are in regard to the General Data Protection Regulation of the European Union, which makes the protection of personal data in Indonesian e – commerce are more strict. The GR also concluded regarding the Administration Sanction, such as: Warning Letter; Listed in the Watch List Priority; Blacklisted; Suspension of Services; Revocation of Business Licence.

Indonesia as one of the largest market of e – commerce in Southeast Asia have done the right thing to regulate and facilitate the industry by enacting the Government Regulation No. 80 of 2019, however, some stakeholders within the e – commerce industry are concern especially the small & medium business (UMKM) regarding the stipulation of Governmental Regulation No. 80 of 2019, their concern over licencing mechanism and tax obligations need to be addressed by the Government in near future in order to ease the compliance and adjustment to the new regulation.

[1] Article 1 (24) of Law No. 7 of 2014 on Trade

[2] hg.org/ecommerce-law.

[3]Medina, Ayman Falak. “Indonesia’s Law on E-Commerce: Clear Guidelines and Compliance by November 2021.” ASEAN Briefing, 28 Jan. 2020.

[4] Article 1 (8) Governmental Regulation No. 80 of 2019

[5] Op. Cit.

[6]Article 15, Governmental Regulation No. 80 of 2019

[7]Medina, Ayman Falak. “Indonesia’s Law on E-Commerce: Clear Guidelines and Compliance by November 2021.” ASEAN Briefing, 28 Jan. 2020.

[8]Article 18, Governmental Regulation No. 80 of 2019