New internet business rules in Indonesia

The Minister of Communication and Information announced in a circular letter No. 3 of 2016 that it will issue regulations to regulate providers of mobile application/internet content providers. This proposed regulation will cover the following:

a.      Compliance with existing laws:

·         Law No. 5 of 1999 on the Prohibition of Monopolistic Practices and Unfair Business Competition
·         Law No. 7 of 2014 on Trade
·         Law No. 8 of 1999 on Consumer Protection
·         Intellectual property rights.

b.      Filtering of content in accordance with Law No. 44 of 2008 on Pornography, and related government regulations.

c.       Censoring of negative content under Minister of Communication and Information Regulation No. 19 of 201412 on Controlling Internet Websites Containing Negative Content.

d.      Use of Indonesian legal entities for receiving payment through "national payment gateway".

e.      Use of Indonesian Internet Protocol (IP) addresses.

This latest attempt to regulate internet operators is believed to help tax revenue collection targeting at payment flow to internet businesses outside Indonesia. Indirectly it seeks to localize online operations.

The regulation is likely to impact on foreign based websites which receive payments from Indonesian users. The major global Internet companies maintain limited local presences in Indonesia, with activities limited to marketing.  Lack of legal certainty is the common excuse by internet businesses for not establishing in Indonesia important business functions such as payment processing.  it is common for these businesses  to use nearby Singapore to process payments. As businesses are required to comply with proposed requirement for receiving payment within Indonesia, the tax authority will be in a better position to trace and audit such receipts which hitherto were channeled out of Indonesia.   The proposed regulations probably also have in mind UBER and GRABBIKE transportation apps that have been in the media spotlight due to conflicts with existing transport businesses.

Previous attempts to regulate internet businesses did not progress very far.  In 2014, the government issued  a set of draft regulations to regulate internet operators. Businesses opposed these draft regulations because of overly prescriptive rules such as the need for certification, registration and locating of data centres in Indonesia.  These regulations never passed. 

Online businesses will need to monitor the language of the latest proposed draft regulations when issued to better understand their impact.