Development of Digital Economy in Indonesia

Digital Economy, specifically e-commerce is currently experiencing a large market growth and thus presents immense potential to contribute to the national economic growth. This phenomenon cannot be separated from the increase of internet users in Indonesia from year to year.

According to the Survey for Internet User Penetration and Behavior in Indonesia 2017 conducted by the Indonesian Internet Services Provider Association (Asosiasi Penyelenggara Jasa Internet Indonesia (”APJII”), internet users in Indonesia has reached 143,26 million from the total population of 262 million or around 54,68% of total Indonesian population. The estimated value of transaction performed in 2017 has reached 140 Trillion Rupiah. With the current market situation, Indonesian e-commerce has become one of the most in demand sector for both foreign and local investors.

In an e-commerce system, 4 (four) main components are required to effect an online transaction, store/marketplace, seller and buyer, payment gateway, and delivery service. In Indonesia, platform based marketplace has just reached popularity in the last decade, whereas gateway payment has only been popular in the last 6 years. From the various foreign and local e-commerce players conducting their business in Indonesia, based on the data provided by iPrice in 2018, the top marketplaces based on the monthly website traffic, application ranking, social media follower and employee count, the ranking is as follows:

  • Lazada

Holding the first position in Indonesia with monthly traffic of more than 117.000.000 visitors, this Alibaba Group owned marketplace has more than 556.000 followers on Instagram and 22.700.000 followers on Facebook. Lazada has 1.479 employees.

  • Tokopedia

Tokopedia is a local player sitting on second place. Tokopedia has 391.000 followers on Instagram and 5.000.000 followers on Facebook with total of 1.611 employees.

  • Bukalapak

Another local player, on third place Bukalapak has monthly traffic of 93.000.000 with 258.000 followers on Instagram and 2.000.000 on Facebook. Founded by Achmad Zacky, this online marketplace has 1.233 employees spread between Jakarta and Bandung.

  • Blibli

In fourth place, as a subsidiary of Djarum Group, Blibli has monthly traffic of 45.000.000 with 167.000 Instagram followers and 7.300.000 Facebook followers. Blibli has the least amount of employees at 797.

  • Shopee

Originated from Singapore, Shopee holds the fifth place with total monthly traffic of more than 34.500.000 with 712 Instagram followers and 9.000.000 Facebook followers. Lead by Chris Feng, Shopee has 1.129 employees in Indonesia.

Meanwhile, based on the survey conducted within the last 2 (two) years, the ranking of startup company according to their investment value is as follows:

Go-Jek, a startup business established in 2010 with its main business being online transportation, Gojek has received around USD 3,300,000,000 in foreign investment.

Tokopedia, a startup having its business as an online marketplace which allows individuals and business owners to establish online stores for free, Tokopedia has received foreign investment amounting to USD 1,100,000,000.

Akulaku, a startup which provides financial services by giving out loans to its customers without the requirement of credit cards. They have received around USD 285,000,000 in foreign investment.

PT Indo Lotte Makmur (iLOTTE), a joint venture between Salim Group and Lotte Group which business is in online retailing, iLOTTE has received foreign investment amounting to USD 100,000,000.

Pundi X, a startup company which is a cryptocurrency retailer with around USD 35,000,000 in foreign investment.

Considering the vast potential for national economic growth in e-commerse and the ability to attract foreign investors, the government has issued Presidential Regulation Number 44 of 2016 regarding Negative Investment List (“DNI 2016”) which offers great opportunities for foreign investors wanting to invest in e-commerce. Previously very limited, now foreign investors are allowed to hold 100% shares in the e-commerce sector. The stipulation is that foreign investment is only allowed for e-commerce sector where the transaction is performed though an online electronic system in the form of platform based marketplace, daily deals, price grabber or online classified ad, whereas digital retailing is still reserved for local investor especially micro, small and medium businesses (Usaha Mikrok, Kecil, dan Menengah (UMKM”)).

The issuance of DNI 2016 has also attracted Expedia, a USA based travel company to invest USD 350,000,000 in Traveloka in 2017. Alibaba, a Chinese technological giant has also invested in Indonesia in early 2018. Currently, Alibaba holds 2 (two) of the largest marketplaces in Indonesia, Tokopedia and Lazada. Amazon will also invest 14 Trillion Rupiah in Indonesia’s e-commerce sector towards the end of 2018.

Regardless of the fast growing e-commerce sector, there are no adequate regulations and policies.  Up till now, e-commerce policies in Indonesia relies on Law Number 7 of 2014 regarding Trade (“Trade Law”), Law Number 11 of 20078 regarding Electric Information and Transaction, and Law Number 19 of 2016 regarding the Amendment of Law Number 11 of 2008 regarding Electronic Information and Transaction (“IT Law”). In Trade Law, e-commerce is referred to as Trade Through Electronic System (Perdagangan Melalui Sistem Elektronik (“PMSE”)). As mandated in Trade Law, there is a requirement for government regulations regarding the performance of PMSE. However up until this article is published, this has not been realized and is currently still in the form of Draft Regulation regarding Commercial Transaction Through Electronic System (“PMSE Draft Regulation”) which was drafted in 2015.

In the PMSE Draft Regulation, the government set forth the following requirements for the establishment of an e-commerce business:

  • E-commerce businesses are required to have clear legal identity;
  • Transnational transactions are required to meet the export import provisions; and
  • E-commerce businesses are required to submit data to the Ministry of Trade.

It will be interesting to observe whether or not the government will require for all e-commerce business to be registered in Indonesia. If such registration is required, all foreign e-commerce businesses, platform marketplace or payment gateway, shall be required to at least have a permanent establishment or Permanent Business Entity (Badan Usaha Tetap (“BUT”)). This will not be easy to enforce bearing in mind that most e-commerce businesses are provider of Over-the-Top (“OTT”) services which are yet to have BUT in Indonesia.

In relation to Bank of Indonesia Regulation Number 19/8/PBI/2017 regarding National Payment Gateway (Gerbang Pembayaran Nasional (“GPN”)), it is not clear whether international transactions will then be considered as domestic transactions taking into account the requirement for OTT businesses to have local presence in Indonesia.

The essence of e-commerce is to provide ease and choice. Consumers are attracted to the ease of shopping and transaction as well as the diverse option of goods e-commerce offers that traditional retailers do not. However, with the enactment of Minister of Finance Regulation Number 112/PMK.04/2018 regarding the Import of Consigned Goods (“MoF Reg 112/PMK.04/2018”) which limits the tax free value of imported goods at FOB USD 75.00 (seventy five United States Dollars), added with the complicated export import licensing, the options of goods and services e-commerce platform can offer to the consumers become limited, especially if the goods and services cannot be locally sourced.

The PMSE Draft Regulation is expected to offer further protection for both consumers and businesses by requiring e-commerce businesses to have clear legal identity and offering an equal playing field for businesses with the compulsory submission of activity data to the Ministry of Trade.

Regardless of the limited legal instrument available, the government should pay attention to the matter of legal enforcement against possible infringements and violations in the e-commerce sector, such as misuse and consumer data theft, fraud, forgery of goods, intellectual property infringement, and cybercrime to name a few.

Based on the above, special attention is required in the development of the PMSE Draft Regulation to ensure that the ensuing regulation will not stunt the growth of e-commerce sector by being difficult to businesses and to ensure the effectivity of its enforcement.

Marizca Rachel Poluan

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Vania Sebayang

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Felicia Tania

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