Monetary and Fiscal Policies that Impact to Indonesia E-Commerce Business.

Background Implementing of fiscal and monetary policy in Indonesia is having great relation to business process environment. The amounts (balance) of revenue and spending will derive Indonesia Government to decide fiscal policy that have goal to achieve macroeconomic stability, allocate government funds and improve income distribution. Monetary variables that will impact of business activity are interest rates, official and real credit rates and money supply and demand. Monetary policy assign in order to meet short run (stability of exchange rate, inflation and balance of trade) or/and long run (social welfare) of country objectives (Adiningsih, 2013). Monetary and fiscal policy can be implementing simultaneously to prevent some extraordinary conditions of global environment or internal country situation (Laurens & Piedra, 1998). For instance by increasing income tax be accompanied by increasing central bank interest rate and also push down the government expenditure for the non routine expenses (such as international visit of government or parliament) in order to achieve stability of economics environment and reform in budgeting to be successfully implemented. Every country needs to determine the right combination of monetary and fiscal policies in the right conditions (right pills on the right disease) of global environment and country itself (Adiningsih, 2013). Improvement of middle class in Indonesia tends to open new opportunity of business, especially for using technology and communications as well as improve ease of people doing activities. E-Commerce business gain huge demanding for urban people in Indonesia. Based on ASEAN E-Commerce Database Project (2010), Indonesia has only contribute 24.4% in internet penetration of ASEAN or only 12% Indonesia people can accessed Internet (20% is an average of ASEAN penetration to Internet), that proportion is look small when compared to Indonesian population to ASEAN. The research found across the ASEAN, many consumers look at the Internet before purchasing in a retail store but a large percentage across all countries has never purchased anything online. Among those who have purchased online, many use online payment methods and a majority has bought something in the past 3 months. The online shopping preference within in each country is quite varied. The travel industry, clothing, and book industry is a favorite in most countries while groceries and household items seems to be the least purchased online. Monetary Policy In board of governors meeting held on 12th September 2013, Bank Indonesia decided to raise the BI rate by 25 bps to 7.25%, the rate on the lending facility by 25 bps to 7.25% and the rate on the deposit facility by 25 bps to 5.5%. This is a uptrend of BI rates since June, it will be the fourth time BI increasing the rates, from 5.75% to 6% (May-June), from 6% to 6.5%(JuneJuly), from 6.5% to 7% (July August) and from 7% to 7.25% (August September) (Bank Indonesia, 2013). This decision is reflected the pressure of inflation for Indonesia (also regional)

Monetary and Fiscal Policies that Impact to Indonesia E-Commerce Business

in May September, uncertainty on global financial markets that decrease value of rupiah and in overall global economic slowdown that impact idle (consideration) investment period in Indonesia. BI decision to raise the reference interest rate was aimed at making Rupiah more attractive as an investment, hence propping the Rupiah exchange rate against other currencies from even deeper depreciation. Another reason that drove the central bank to take the policy measure was an effort to reduce current account deficit (Macroeconomic Dashboard FEB UGM, 2013). Opportunities This is the right time for Local E-Commerce business to provide Indonesia products to Indonesia market and also global market. Increasing the amount of local consumption will also derive to hold Indonesia GDP growth in positive. Threats Huge inflation rise tendency of people to tightening the amount of expenditure and the slowdown of global economic will slower the infrastructure investment that significant factor to influence E-Commerce development. Fiscal Policy Depreciation of rupiah has the potential to lead to a higher amount of government expenditure allocation on subsidies and debt servicing in State Budget Plan (APBN) 2014 despite the fact that tax revenues registered a nominal increase of 7.01% (yoy), however, the revenue realization as per 31 August 2013 in percentage terms (that is tax revenue realization as a percentage of the tax revenue target) decreased by 4.84% compared with the same period in 2012. In nominal terms, income tax on non oil and gas, value added tax, and luxury goods sales tax, and other taxes recorded an increase compared with the same period in the previous year. Tax revenues which registered a decrease include tax on land and building (69.87%), and income tax on oil and gas (3.55%) (Macroeconomic Dashboard FEB UGM, 2013). The Value Added Tax (VAT) rate is typically 10%. This may be increased or decreased to 15% or 5% according to a government regulation. However, VAT on the export of taxable tangible and intangible goods as well as export of services is fixed at 0%. Certain limitations for zero-rated VAT apply to export of service. VAT is calculated by applying the VAT rate to a relevant tax base. In most case, the tax base is the transaction value agreed between the parties concerned (PricewaterhouseCoopers, 2013). In September 2013, VAT refund for tourist scheme already implement for foreign passport holders in order to attract consumption of foreigner (Directorate General of Taxes, 2013). E-Commerce transactions are the ways of company to minimize cost of distribution and avoiding VAT that will lower price of products to consumers. Directorate General of Taxes plan to taxing online transaction in Indonesia, but the implementation of this scheme still arrange

Monetary and Fiscal Policies that Impact to Indonesia E-Commerce Business

together with Ministry of Communication and Telecommunication. There are three channels of E-Commerce retailing in Indonesia, first is from online store website to customers (Registered), second is from platform that meets sellers and buyers and third is from social media networking. The plan of directorate general of taxes is assign tax to online store that already registered and professionally manage by more than two person (limited company) (Kompas, 2013). Opportunities Amount of VAT that will grant to E-Commerce business will increase Consumers Tendency Index and Business Tendency Index in general, trust of consumers will build up and climate of industry will be much better after implement this policy. Consumer Tendency Index aims to get a picture of a business situation and general economic consumer opinion, based on consumer purchasing power and also on perceptions about business conditions and economy. Business Tendency Index provides information about state of business and the economy in the short term. Threats Tax based transaction will be seen costly for consumers, in emerging market consumer has tendency to more selective in buying decision process. In consumers perception, E-Commerce is one of channel that offers more affordable than buy at store, because E-Commerce eliminate some fix cost that turn up in conventional business. Some strategic promotion may be implementing periodically by E-Commerce Company to prevent VAT issue in the future.

References Adiningsih, S. (2013). General Business Environment Course Materials: Monetary and Fiscal Policies. Master of Management Universitas Gadjah Mada. Andaya, B.D., et al. (2010). The ASEAN E-Commerce Database Project [electronic version] . DTI/ASEANTELSOM/01. Directorate General of Taxes. (2013). VAT Refunds for Tourist [electronic version]. Press Release. Bank Indonesia. (2013). Monetary Policy Review [electronic version] . Periodically Report. Kompas. (2013, July 15). After Small Medium Enterprise and Property, Government Tax targeted Online Store. Retrieved September 25, 2013, from Business and Finance Kompas: www.bisniskeuangan.kompas.com/read/2013/07/15/1517055/Setelah.UMKM.dan.Properti.P ajak.Lirik.Toko.Online Laurens, B., & Piedra, E. G. (1998). Coordination of Monetary and Fiscal Policies. International Monetary Fund Working Paper , 1-31. Macroeconomic Dashboard FEB UGM. (2013). Indonesian Economic Review and Outlook [electronic version] . No.3/Year II/September 2013.

Monetary and Fiscal Policies that Impact to Indonesia E-Commerce Business