The largest Southeast Asian market is fiercely competitive, and Netflix faces players like iflix, Hooq, and HBO Go.

Editor’s note: This article is from KrASIA, the original title is Netflix’s complicated relationship with Indonesia, and the author is Cindy Silviana.

Pioneer of Video on Demand Platform (VOD) Netflix was founded in 1998 as a company that originally provided DVD rental services through postal courier. The company began providing on-demand streaming services in the United States in 2007 and entered the Indonesian market in January 2016. In the same year, Netflix’s competitors in the region, iflix and Hooq, started offering similar services.

Netflix is ​​a global leader in streaming. According to Statista, as of the fourth quarter of 2019, the company had more than 167 million paying users. However, despite its global popularity, the situation in Indonesia is not optimistic. The company has been the focus of the Indonesian Ministry of Finance for the past year because it has not paid any taxes since it started operations in Indonesia.

Statista estimates that if the company had to pay 10% VAT in 2019, the Indonesian government would have received $ 3.8 million in taxes last year. By the end of 2020, Netflix is ​​expected to generate $ 76.63 million in revenue from the Indonesian market. However, as the company has no fixed branches in Indonesia and no taxpayer identification number, the Indonesian government cannot tax it. Netflix’s Asia-Pacific headquarters is in Singapore, and there is no indication that it will open an office in Indonesia anytime soon.

The Indonesian government believes that in the long run, this will hurt the country’s economic interests. Therefore, the government plans to use the Nexus Tax method to obtain potential tax revenue from cross-border digital services, and the levy targets include OTT vendors. With this tax, even if the company does not have a physical entity in Indonesia, as long as it conducts transactions in Indonesia and has a certain economic scale, it must also pay taxes. Details of the new regulation were included in a draft comprehensive tax bill introduced in March of this year. According to the draft, if a company fails to meet its tax obligations, it will be subject to administrative penalties and may be suspended from business.

Netflix and Ministry of Education and Culture

Despite tensions with the Treasury, Netflix maintains a good relationship with the Ministry of Education and Culture, led by former technology entrepreneur Nadiem Makarim. In January, Netflix and the ministry signed a cooperation agreement to promote the development of Indonesia’s domestic film industry.

This collaboration willFocus on developing innovative skills training including creative writing and post-production. Netflix promised to provide $ 1 million in funding for the joint project and sent 15 Indonesian screenwriters to Los Angeles for training in screenwriting and film and television courses.

This initiative has been welcomed by some, but has also been questioned. Given that Netflix’s tax issues have not yet been resolved, there are doubts as to its wisdom. Heru Sutadi, executive director of the Indonesian Institute of Information and Communication Technology (ICT), said that all ministries should be consistent when facing unresolved business issues.

In his opinion, “Given that the Treasury is currently reviewing Netflix’s taxation, the Ministry of Education and Culture should first discuss or communicate with the Treasury. Because when there is a problem between a company and one agency, they may turn to another look Better negotiated institutions. Netflix definitely owes far more taxes than it invests in this partnership, so we have to make sure they comply with our tax rules. “

But Makarim is not waiting for the new tax regulations to be introduced, because it will take several more months and affect his pace to train domestic film talents. However, despite the support of the Ministry of Education and Culture, Netflix still needs to comply with new tax regulations if it is to operate stably in this Southeast Asia’s largest market.

Netflix vs Telkom

Another big issue facing Netflix is ​​that its services are currently blocked by Indonesia’s largest telecommunications company Telkom Indonesia and its subsidiary home Internet provider IndiHome and mobile operator Telkomsel. Faizal Djoemadi, director of digital business at Telkom Indonesia, said in a recent interview with KrASIA that Netflix was reluctant to take Telkom’s request to remove “problematic content” within 24 hours-sensitive content including nudity, violence, etc.

As a result, Netflix cannot continue to take advantage of Telkom’s vast user base. According to Djoemadi’s statistics for the third quarter of 2019, IndoHome has 7 million users and Telkomsel has 170 million users, of which nearly 65% ​​are traffic users.

Netflix Indonesia previously stated that the company has collaborated with XL Axiata, Hutchinson 3 and Smartfren since 2018. In this regard, the company seems unwilling to compromise on content issues and will instead choose to partner with other major telecommunications and Internet providers in Indonesia.

In addition, the incident also attracted the attention of Indonesian competition regulators. recent,