Indonesia Set to Impose Income Tax on Crypto Assets from May

Indonesia, the largest economy in Southeast Asia, announced plans to charge value-added tax (VAT) on crypto-asset transactions as well as an income tax on capital gains from such investments at 0.1% each, beginning May 1st.

A tax official made the announcement last Friday amid a boom in crypto asset trading in the country. In a statement, Hestu Yoga Saksama, the tax office spokesperson, said: “Crypto-assets will be subject to VAT because they are a commodity as defined by the trade ministry. They are not a currency. So, we will impose income tax and VAT.”

Saksama further disclosed that the government is still working on implementing regulations for taxes associated with crypto assets.

The VAT rate on cryptocurrencies is well below the 11% imposed on most goods and services in Indonesia, while the income tax on capital gains, at 0.1% of gross transaction value, matches that on shares.

The official stated that a wide-ranging tax law that the government passed last year was the legal basis for taxes on crypto assets. He mentioned that the law aims to enhance revenue collection, which was hit by the economic and social disruption caused by the Covid-19 pandemic.

Cryptos on the Rise in the Country

In January, Indonesia’s Financial Services Authority (OJK), the government agency in charge of regulating the financial sector, warned that financial companies are not allowed to provide and facilitate sales of cryptocurrencies amid a boom in crypto trading in the country.

The OJK banned financial service institutions from using, marketing, and facilitating crypto trading. The regulator also warned that the value of cryptocurrencies often fluctuates and that individuals purchasing digital assets should fully understand the risks.

Indonesia allows sales of cryptocurrencies in the commodities exchange and trading, which is supervised by the Commodity and Futures Trading Regulatory Agency (CoFTRA) under the Ministry of Trade, not by the OJK.

Currently, the ministry is facilitating the setup of a separate bourse for digital assets, known as the Digital Futures Exchange, within this year.

Interest in digital assets has surged in Indonesia during the COVID-19 pandemic, with the number of crypto holders rising to 11 million by the end of last year.

Last year, the total crypto transactions in commodity futures markets climbed to 859.4 trillion rupiahs ($59.8 billion), up more than 10 times from the transaction value witnessed in 2020, according to data from the Commodity Futures Trading Regulatory Agency.

The government allows Indonesians to trade crypto assets as a commodity but not to use them as a means of payment.