Facebook received in-principle approval to set up a unit in Indonesia, which is pushing for multinational internet firms to be locally incorporated to prevent them from avoiding tax, Reuters said.
Indonesia complained foreign internet companies operate small business units to provide “auxiliary” services to get away with paying minimal tax, while booking the majority of their revenue from the country through a regional division.
The social media giant opened an office in Jakarta three years ago.
Indonesia, with a population of 263 million, had 88 million monthly active Facebook users in June 2016, according to Internet World Stats.
The Indonesian government last week reached a settlement with Google in a long-running dispute over allegations the tech giant avoided paying millions of dollars in taxes.
In September 2016 Indonesia’s tax office said it would investigate Google for not paying taxes on billions of dollars of advertising revenue over the past five years. The tax office alleges Google Indonesia paid less than 0.1 per cent of the total income and value-added taxes it owed in 2015. The Directorate General of Taxation estimates Google’s revenue reached IDR6 trillion ($451 million) in 2015.
The tax authority said Google owes about IDR5 trillion in back taxes and penalties.
Indonesia’s government is eager to find new tax sources to boost state revenue. Its tax office estimates total advertising revenue for the industry at $830 million, with Google and Facebook accounting for around 70 per cent, Reuters said.
Other countries are taking steps to tighten tax rules for internet and technology companies like Google.
Thailand’s Finance Ministry announced in September 2016 it was looking to expand tax regulations to cover mobile transfers and internet payments.