Indonesia Puts Squeeze On Foreign Tech Companies

By Resty Woro Yuniar

JAKARTA, Indonesia--Companies providing Internet-based services in Indonesia would have to incorporate themselves and pay taxes there under a proposed law that analysts say could affect U.S. tech giants and scare investors away from the nascent tech sector.

Facebook Inc., Alphabet Inc.'s Google unit and Twitter Inc. are among the companies that have invested and established representative offices in Indonesia--the world's fourth-largest country by population, and one that many of the tech sector's biggest names see as the next major source of growth. Others recently entering the market include video-streaming service Netflix Inc., ride-hailing app Uber Technologies Inc. and, just this week, music-streaming service Spotify AB.

The Communication and Information Technology Ministry laid out the proposed requirements in a letter posted on its website Thursday night. The ministry said it wants to provide tech companies time to comply before the new rules take effect; it didn't say when that will be.

Under the proposed law, companies providing content such as movies, music, TV shows and text would have to set up local companies; self-censor to conform with Indonesian cultural norms; use Indonesia-based payment gateways; and make their data easily accessible to law enforcement. Companies with representative offices would be obliged to upgrade them.

"It's not enough to have only a representative office, as Indonesian advertisers pay for their digital ads through these companies' headquarters offshore," Communication and Information Technology Minister Rudiantara, who like many Indonesians goes by one name, said last month.

Representatives for Google and Twitter declined to comment; a Netflix representative couldn't immediately be reached for comment. Spotify has said that its partnership with PT Indosat Tbk, the country's third-largest telecommunications provider, provides it legal support to operate here.

"Perhaps Indonesia should just openly state its intrinsic intent and go the way of China rather than masquerade around different laws and regulations that only serve to confuse the issue on hand," said Sudev Bangah, country manager for consulting firm IDC in Indonesia and the Philippines.

Fast-changing regulations are one of the main challenges for foreign tech investors in Indonesia. Analysts say the government creates uncertainty by introducing new laws without inviting stakeholders into the discussion.

"If the government needs to introduce or consider a regulation, the most important lens to view that regulation through is the impact that it may have on the digital entrepreneurs and the investors," said Matthew C. Le Merle, managing partner at Fifth Era, a Silicon Valley-based consulting firm specializing in emerging-market tech investing. "Most regulators are moving too fast to introduce regulations without having considered the impact on the people that are driving the digital economy [at] grass-root levels, and that is a mistake."

Last week the Transport Ministry said Uber and Singapore-based rival GrabTaxi Holdings Pte. Ltd.--which have been the target of mass protests by taxi drivers that paralyzed parts of Jakarta--would have two months to obtain the permits and licenses needed to operate as a cooperative of car rental drivers. During this period, the two companies aren't allowed to recruit new drivers.

In January state-owned PT Telekomunikasi Indonesia Tbk., or Telkom, blocked access to Netflix after it objected to violent and adult content. Regulators previously barred access to sites operated by Vimeo LLC, Reddit Inc. and photo-sharing service Imgur LLC. Vimeo and Reddit are still blocked.

Netflix has said that it intends to comply with local laws and regulations where applicable.

(END) Dow Jones Newswires

April 01, 2016 08:02 ET (12:02 GMT)

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