Indonesia imposes tax to crypto asset transactions

The Government of Indonesia has issued regulations to tax crypto asset transactions under the authority of the Minister of Finance. The Minister of Finance made the decision to go one step further despite the legal situation still being unclear by issuing tax regulations on crypto-asset transactions that will begin to apply value added tax (VAT) and withholding tax (WHT) beginning in April 2022.

According to this regulation, the Registered Trading Organizer must withhold tax (WHT) and collect VAT from the transactions that they facilitated using an electronic system (Trading Platform). The rules requiring the collection of VAT and WHT do not exempt providers of crypto-asset mining services.

If traded by physical traders of crypto assets, VAT of 0.11% of the value of the sale and purchase is applicable. They are subject to 0.22% of the value of the sale and purchase if traded by non-physical traders. While crypto asset mining services continue to be subject to 11% VAT, the acquisition of value from miners is only subject to a VAT of 1.1%. (only to the amount of services, exclude crypto assets value).

Additionally, sales of cryptocurrencies are subject to a 0.1% withholding income tax for physical traders and a 0.2% withholding income tax for non-physical traders.

Physical cryptocurrency asset traders are defined by the Minister of Finance Regulation as service businesses that have been authorized and verified by the state. They are allowed to trade crypto assets and are required to notify the appropriate authorities of their trading activities.

A number of controversies have surrounded the growth of cryptocurrencies in Indonesia. In the beginning of 2019, one of the biggest religious organizations declared cryptocurrencies to be forbidden. Even though the fatwa has not yet been revoked, the public's interest in purchasing and trading cryptocurrency assets has not diminished.

The second is the increase in cryptocurrency-related fraud cases. For instance, betting on the price changes of specific cryptoassets in a game of chance. In Indonesia, gambling is categorically prohibited. A Ponzi scheme-style fraud is then used to trick the victim into thinking they are purchasing crypto assets with high returns when, in reality, they are merely playing a money game. Around 100 people reported to the police in 2021 that they had been the victims of a cryptocurrency fraud scheme involving more than US$ 6 million.

In general, the Central Bank and the Indonesian Financial Service Authority forbid any financial service provider, including banks, insurance companies, and multi-finance firms, from facilitating cryptocurrency activities, including marketing and trading. Bitcoin and a number of other crypto assets, according to the Minister of Trade, could be traded in Indonesia.

The guidelines for trading cryptocurrency assets were published by the Ministry of Commerce in 2020. The Ministry requests merchant registration in order to monitor every transaction and prevent fraud and abuse. The Ministry of Trade has released a whitelist of businesses that exchange or act as brokers for cryptocurrency assets. 18 crypto-asset trading firms and 219 crypto assets have received licenses to trade in Indonesia as of this writing.

By fLEXI tEAM