Indonesia Taxes Crypto Asset Transactions

By Wahyu Wibowo, CPA; Tax practitioners, HLB Indonesia

Through the authority of the Minister of Finance, Government of Indonesia has issued regulations to taxing crypto assets transactions. Although the legal position is still ambiguous, the Minister of Finance chose to go one step further by issuing tax regulations on crypto-asset transactions by applying value added tax (VAT) and withholding tax (WHT) starting in April 2022.

In this regulation, the Registered Trading Organizer through electronic system (Trading Platform) must collect VAT and withhold tax (WHT) from the transactions which they facilitated. Crypto- asset-mining service providers are also not exempt from the provisions to collect VAT and WHT.

Crypto-asset transactions are subject to VAT 0.11% of the value of the sale and purchase if traded by crypto assets physical traders. If traded by non-physical traders, they are subject to  0.22% of the value of the sale and purchase. The acquisition of crypto-asset value from miners is subject to VAT of 1.1%,  while crypto asset mining services are still subject to 11% VAT (only to the amount of services, exclude crypto assets value).

Crypto-asset sales transactions are also subject to withholding income tax of 0.1% if carried out by crypto-asset physical traders and 0.2% if carried out by non-physical traders.

The Minister of Finance Regulation defines that physical crypto-asset traders are service companies that have been legalized and verified by the state. They are permitted to conduct crypto-assets trading activities and are obligated to report such trading activities to the designated authorities.

Controversies

The development of crypto assets in Indonesia has been marked by several controversies, first in early 2019 one of the largest religious organizations labeled crypto assets as haram*. Even the fatwa** has not been revoked until now, it does not dampen the public’s interest in buying and trading crypto assets.

Second, the rise of fraud cases in the name of cryptocurrencies. For example, gambling by using the price movements of certain crypto assets as a bet. Gambling is strictly prohibited in Indonesia. Later, a Ponzi scheme-style fraud that is made as if the victim is buying crypto assets with high returns when in the end it is just a money game. In 2021, around hundred people involving more than US$ 6 million reported to the Police as victim of cryptocurrencies fraud scheme.

In general, Indonesia Financial Service Authority and the Central Bank prohibit every financial service institution, such as banks, insurance, or multi-finance companies, to facilitate crypto activities, from marketing to trading. However, the Minister of Trade stated that bitcoin and several other crypto assets could be traded in Indonesia.

In 2020, the Ministry of Commerce has published the rules for trading crypto assets. The Ministry asks merchants to register themselves so that every transaction can be monitored and to avoid abuse and fraud. The Ministry of Trade has published a whitelist of companies that trade-in, or become intermediaries for, crypto assets. To date, there are 219 crypto assets that have been licensed to be traded in Indonesia and 18 crypto-asset trading companies.

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*haram = Prohibition in religious belief

**fatwa = Instruction based on religious belief