JAKARTA – The U.S.-based streaming platform Netflix is one of the state-of-the-art giants to be taxed in Indonesia as its popularity rises from the pandemic and the government is looking for untapped sources of profit.
According to Netflix’s second quarter report, the company has 193 million paid subscriptions worldwide, after an increase of 10.1 million during the same year, as more people seek home entertainment during the fitness crisis.
However, Netflix has arguably the most confusing appointments with Indonesia of all its rivals.
Since entering the country 4 years ago, Neflix has experienced a changing regulatory and political landscape, from the rugged start of the state-owned ban to a $1 million deal with a newer department.
Censorship and sensitivity
When Netflix became available in Indonesia in January 2016, the streaming service was temporarily blocked through state-owned Telecom company Telkom Group.
The giant has banned Netflix on all its platforms, namely IndiHome, Telkomsel and WiFi.id. According to Dian Rachmawan, telkom’s then-director of customer relations, he cited a licensing and unfiltered content challenge, adding conditions of violence and adults.
He suggested that Netflix cooperate with the country’s suppliers so that its content can be censored in accordance with Indonesian regulations.
However, he commented that the presence of the streaming service may be only for the country’s entertainment industry and other online businesses.
Researcher Nailul Huda of the Institute for the Development of Economics and Finance (Indef) echoed Rudiantara’s sentiment.
“If that were the case [that the government opposed Netflix], it has been blocked from all web providers, not just Telkom,” he told the Jakarta Post on Tuesday.
Telkom partnered with Singapore-based OTT (over-the-top) video streaming service HOOQ and Malaysia’s iFlix, which expanded operations in Indonesia in 2016.
The public largely supports the expansion of Netflix in Indonesia. Some argued that the service had an age-restraint mechanism that would prevent young people from seeing adult content.
“Foreign platforms coming to Indonesia think they don’t want Indonesian companies, so there’s a sense of defeat. Netflix has been under pressure to have a better negotiating position,” Indonesia ICT Institute executive director Heru Sutadi said Thursday.
Friend of the government
During President Joko “Jokowi” Widodo’s tenure, his closet changed.
Jokowi appointed Nadiem Makarim, the founder of Indonesia’s multi-service program company Gojek, Minister of Education and Culture, while Johnny G. Plate succeeded Rudiantara as Minister of Communication and Information.
“We will join local corporations and those responsible for solving the expansion of virtual skills,” said Netflix Asia-Pacific EXECUTIVE Director Kuek Yu-Chuang, adding that systems would be useful for Indonesia’s film and television industry.
In June, the ministry announced a momentary partnership with Netflix to broadcast some of the documentaries from the broadcast service on the public television network TVRI. The program was designed to help home schooling efforts during the pandemic, primarily for students, teachers, and parents with limited Internet access.
Minister Johnny G. Plate sparked public controversy with an observation on Netflix in January.
“We ask that the Netflix originals be in Indonesia. Just use the creativity of the Indonesian people, if possible,” he said.
He later clarified that he meant that he was looking for Netflix to stream more films directed through Indonesians.
INDEF researcher Nailul said Nadiem’s resolve to be a spouse with Netflix is likely a way to earn the sympathy of the public as a government-appointed person who supported the platform.
“This has gained a lot of sympathy for Pak Nadiem, from his Generation Y colleagues,” he said.
Charging on the pandemic
The COVID-19 pandemic has a significant economic slowdown in the country. In May, tax collection fell by 10.8% year-on-year to 444.6 trillion rupees, as revenues in almost all economic sectors declined.
In an effort to compensate for the loss of revenue, the government announced in late March that it would impose a 10% value-added tax (VAT) on certain intangible goods and services, adding video and music streaming services.
He ciesed the tax even after the U.S. Office of the Trade Representative (USTR) announced that it would investigate the policy, for fear that it unfairly points to U.S. virtual companies.
“Indonesia’s tax base will shift to virtual taxes as online transactions have grown significantly, namely the COVID-19 pandemic,” Finance Minister Sri Mulyani Indrawati said at the time.
A survey through the Mobile Marketing Association (MMA) showed that 25% of Indonesian respondents had tried virtual entertainment, such as streaming or online gaming, for the first time during the pandemic.
“Ultimately, it’s up to governments to have tax rules, and in every single country we operate in, Netflix complies with the rules,” a Netflix spokesman said earlier. “Taxes are a vital and much-discussed factor in Indonesia, and we have had conversations in recent months with the tax authorities.”
Heru Sutadi of the ICT Institute encouraged the government to urge Netflix to set up a commercial entity in Indonesia so that the source of income tax can be raised from the company.
Telkom arrives
After five years of Netflix from its platforms, Telkom announced in early June that it would allow its users to access the streaming service.
Arif Prabowo, the company’s vice president of corporate communications, said the resolution made after Netflix pledged not to broadcast “prohibited content that adds child pornography and terrorism” and agreed to respond to visitor court cases within 24 hours.
“Telkom prioritized other OTTs that already had a relationship with them. But the pandemic, Netflix users grew up and has become a horny spouse for them,” he said.
Local or foreign? The floodgates open
Recently, Netflix increased its subscription fees in Indonesia to take VAT into account. Now, its costs vary from Rp 54,000 to Rp 186000 according to the month, making it more expensive than local transmission services.
Local streaming such as the Video-on-Demand platform Vidio and GoPlay have also gained popularity as they stream more local content and have lower subscription fees.
Founded in 2014 and with more than 60 million active users, Vidio offers a subscription to its Premier Platinum plan for 42,000 Rp per month.
Disney Plus, the streaming service of entertainment giant The Walt Disney Company, is expected to be available soon in the country.
“The on-demand video industry will grow over the long term as more facilities enter Indonesia,” Nailul said. “Increased average Indonesian elegance and the shift from consumers to online activities during COVID-19 are some of the turning points behind this trend.”
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