TLDRs:
- Indonesia cannot tax Netflix subscriptions due to the company’s lack of local offices.
- Users pay Netflix via Singapore or Netherlands accounts, avoiding Indonesian taxes.
- OECD’s Pillar 1 framework could change rules, but adoption is stalled.
- Global digital tax challenges persist, leaving Indonesia with limited enforcement tools.
In May 2025, it became evident that Indonesia faces significant hurdles in taxing foreign digital platforms like Netflix. Despite substantial subscription revenue from Indonesian users, Netflix does not pay taxes locally.
The company collects payments through its offices in Singapore or the Netherlands, bypassing Indonesian tax obligations entirely.
Melani Dewi Astuti, a senior international tax analyst at Indonesia’s Ministry of Finance, explained that the country currently lacks a legal framework to tax digital service providers that operate without a physical presence in the country. “Without local offices, these companies fall outside our conventional tax system,” she said.
Physical Presence Dictates Tax Rules
Unlike Netflix, tech giants such as Apple and Google maintain local offices in Indonesia. These companies are subject to value-added tax (VAT) on transactions, though they still avoid income tax for their operations.
The disparity highlights a loophole in the taxation of digital services, where physical presence remains the defining factor for legal compliance.
This approach contrasts sharply with Indonesia’s efforts to engage in global digital tax frameworks. The OECD and G20’s Pillar 1 initiative, which seeks to allow countries to tax digital companies based on economic activity rather than physical presence, has not yet been implemented in Indonesia.
Global Tax Agreements Stalled
Astuti noted that one key obstacle is the United States’ decision not to participate in Pillar 1, which has slowed global adoption. As a result, Indonesia and other countries facing similar challenges cannot currently collect income taxes from major foreign digital platforms with significant local user bases.
“The inability to tax these companies is not due to lack of effort,” Astuti said. “It is a structural challenge that requires international cooperation to resolve.”
Industry Trends Highlight Pressure
Indonesia’s situation is part of a broader global pattern in the streaming industry. Platforms like Netflix are increasingly relying on cross-border revenue streams, taking advantage of gaps in local tax frameworks.
Meanwhile, subscription and ad-supported pricing models are evolving worldwide, as seen in other markets.
For instance, in May 2025, Netflix implemented its third-highest global price increase in Korea, affecting both its Basic and Standard with Ads plans. While Standard and Premium tiers remained unchanged, the ad-supported plan rose by 27.3%, reflecting a strategy to increase revenue from both subscriptions and advertising. This demonstrates how digital platforms are adapting to changing market dynamics while operating in jurisdictions with limited taxation powers.
Seeking a Path Forward
Indonesia, like many nations, is exploring how to reform its taxation rules for the digital economy. Experts suggest that adoption of global frameworks such as Pillar 1 could provide legal clarity and allow countries to collect revenue more fairly.
Until then, local users of foreign streaming services continue to pay without contributing to the country’s tax base, a situation that underscores the need for international coordination in digital taxation.
