TEMPO.CO, Jakarta - Any company that reaps profits in a given country is obliged to pay taxes. Google Indonesia is no exception. According to the Jakarta tax agency's calculations, out of revenues it gets from advertising alone, the US-based internet giant owes the state Rp550 billion annually.

But Google Indonesia disagrees. It argues that so far, the company's business transactions for internet products and services are carried out by Google Asia based in Singapore. Established in 2011 through the foreign capital investment scheme, Google Indonesia is only a representative office. On this ground, Google Indonesia believes it is not liable to paying taxes here so it has refused to be audited by the tax office.

From its business activities in Indonesia and the massive profits it makes, Google Indonesia should have changed its status to a permanent business entity in line with the tax law so that its transactions could be taxed. But there is no indication of Google's intention to do so. With this stance, Google gives the impression that it is deliberately avoiding any intention to pay taxes as alleged by tax authorities in many countries.

The company pays a meager amount of taxes in a few large European countries such as the United Kingdom and France and stashes most of its profits in Ireland, which offers the lowest tax rates in the world. But Google should not use the same ploy in Indonesia given the mammoth-sized profits it has made from local consumers.

Collecting taxes from an internet business with cross-country operations needs a special expertise. In this case, Indonesia can learn from India's experience. The Indian government recently announced a policy known as the Google Tax that would see a 6-percent levy slapped on companies buying more than 100,000 rupee (around Rp20 million) worth of digital services annually from foreign companies, including Google.

The policy is only applicable to transactions between local companies and foreign companies that have no permanent business entity in India similar to Google Indonesia in Indonesia. With this, India became the first country to impose taxes in the digital economy.

The Indonesian government could implement the final income tax for every online transaction. Based on Law No. 7/1983 on Income and other regulations, the final income tax is imposed on many kinds of transactions, such as interest deposits and savings. With the final income tax, for example, a bank customer who owns a bank deposit is taxed only once, meaning he or she does not have to declare it in the annual income tax return.

This same tax could be imposed on individuals or local companies buying services from Google or other foreign digital companies so that taxes can still be collected regardless of where these companies are located.

Without such initiatives, Indonesia will remain a haven where foreign business giants can rake in huge profits from local consumers without having to pay taxes to the state. (*)

Read the full story in this week's edition of Tempo English Magazine