Indonesia’s ranking on the ease of doing business index in the World Bank’s “Doing Business 2020” report remained at 73rd of 190 countries, the same position as one year prior. The introduction of various regulations and policies that were designed to be friendly to investors apparently have not succeeded in boosting Indonesia’s ranking to 40th, which has been targeted by President Joko Widodo, better known as President Jokowi.
Government Regulation No. 24 of 2018 on electronic integrated business licensing services (GR 24) was a landmark regulation issued for the purpose of accelerating and increasing investments and to support businesses. Through GR 24, the Indonesian government introduced an ICT-based business-licensing system that integrated and streamlined licensing processes at the regional and national levels by integrating several licences into one. While these efforts to eliminate hurdles that investors encounter when applying for licences did not aid in boosting the country’s overall ranking, it should be noted that the “Doing Business 2020” report indicated that Indonesia made progress by introducing online licensing and filing to make business easier for investors.
Going Digital
The use of ICT in the private sector has been increasing throughout recent years. As the largest population in South-east Asia, estimated at 268.1m, and with approximately 171.2m internet users, Indonesia clearly represents a large market to tap into. Due in part to this sizeable population, many parties consider Indonesia as one of the main players in the ICT industry and the digital economy. This is being realised through the emergence of tech start-ups, with the country boasting four unicorns valued at $1bn or above, as well as one decacorn worth upwards of $10bn as of February 2020.
The “Unlocking Indonesia’s Digital Opportunity” report from McKinsey suggested that the country stands to gain an estimated $250bn in economic growth by 2025 if it fully embraces digitalisation. The success of these start-ups shows the shift of Indonesian market behaviour from conventional commerce to e-commerce.
Technological developments are providing various opportunities for government bodies to further develop and innovate their own electronic systems. In order to realise effective, transparent and accountable governance, as well as high-quality, reliable public services, the government enacted Presidential Regulation No. 95 of 2018 on the electronic-based government system, which is intended to provide guidelines for an integrated and sustainable nationwide system of electronic government services. This regulation added to the list of legislation that the current administration has introduced in recent years aimed at ensuring a transparent, effective, efficient and measured bureaucracy that will improve the quality of government administration and public participation in the country’s development.
Indonesia upholds the main feature of a civil law country, namely a codified system of laws that serves as the primary legal basis for society, government and business. For such a country, it is becoming increasingly important to issue laws and regulations that can accommodate the rapid development of digitalisation and create room for the digital ecosystem to grow. This is a crucial aspect towards achieving the target of boosting the country’s ease of doing business ranking. There were several regulations that were issued throughout 2019 that function as guidelines for certain electronic filing procedures or as umbrella regulations for certain activities. The following are the highlights of those regulations.
Regulating E-Commerce
Government Regulation No. 80 of 2019 on trade through electronic systems (GR 80) was enacted in November of 2019. This long-awaited regulation was issued in order to respond to the mandate provided in Law No. 7 of 2014 to establish further regulations on trade that is conducted via electronic systems or e-commerce. The new regulation is meant to govern such activities, ensure fair and trustworthy trade systems and protect national interests. The scope of GR 80 encompasses all trade activities conducted using various modes and types of electronic communication systems, both online and offline, and also covers legal relations in business-to-business and business-to-customer transactions.
Parties in E-Commerce Activities
E-commerce activities regulated under GR 80 can be carried out between business practitioners, customers, individuals and state institutions under the following frameworks within the private law segment: (i) business practitioners and business practitioners, (ii) business practitioners and customers, (iii) individuals and individuals, and (iv) state institutions and business practitioners. The category of business practitioners is further divided into:
• Merchants, being any business practitioner conducting e-commerce activities either using facilities that are directly made and managed or through facilities owned by organisers of e-commerce (PPMSEs), or through other electronic systems that provide e-commerce facilities;
• PPMSEs, being any business practitioner that provides electronic communication facilities for trade transactions; and
• Intermediary service organisers, being any business practitioner that provides electronic communication facilities other than telecommunication providers, and only serves as an intermediary in electronic communication between the sender and the recipient. This new regulation differentiates between domestic business practitioners and foreign business practitioners; however, foreign business practitioners will be deemed as fulfilling a physical presence in Indonesia and permanently conducting business activities within the jurisdiction of the Republic of Indonesia if they are active in making business offerings and/or conducting e-commerce activities to costumers domiciled within the jurisdiction of the country and satisfy certain criteria under GR 80, namely:
• The number of transactions;
• The value of transactions;
• The number of shipping packages; and
• The volume of traffic or number of visitors. Consequently, such foreign business practitioners must appoint a representative in Indonesia that would act on behalf of the business practitioners in question.
E-Commerce Requirements
GR 80 has defined several requirements for parties to e-commerce to be able to conduct activities. First, parties to e-commerce activities must have and clearly disclose their legal subject identity. This legal subject identity encompasses all information relevant to the location and legal status of parties in question, be it an individual or legal entity, as listed in their identity card, business licence, legal entity legalisation decree, single business number, bank account or mobile phone number. Second, they are required to obtain a security clearance if they are engaging in e-commerce activities of goods and services that have an impact on national security.
In order to protect domestic interests, e-commerce practitioners are obliged to support the government’s promotion efforts by (i) giving priority to the trade of domestic products, (ii) increasing competitiveness of domestic products, and (iii) specifically applicable to local PPMSEs, providing promotional facilities for domestic products. Lastly, PPMSEs must use electronic systems that are in accordance with prevailing laws.
PPMSEs are also required under the regulation to maintain e-commerce data and information in relation to financial transactions for at least 10 years following the acquisition of such data, and five years for data and information that are not related to financial transactions. Such data and information should at minimum include information on customers, electronic offers and acceptances, electronic confirmations, electronic payments, delivery status, trade complaints and disputes, electronic contracts, and the types of goods and services being traded. In addition, PPMSEs are obliged to provide and maintain a transaction receipt of all e-commerce activities, which shall be valid and binding evidence for all parties included for any and all e-commerce transactions.
Under GR 80, regulations stipulate that an electronic contract is valid and binding if:
• It is in accordance with the terms and conditions outlined in the electronic offer.
• The information contained in the electronic contract is in accordance with the information contained in the electronic offer.
• There is an agreement between the parties, specifically that the terms and conditions of the offer sent by the submitting party are accepted and agreed to by the receiving party.
• It is conducted by capable legal subjects or authorised representatives in accordance with laws and regulations.
• There are certain matters.
• The object of the transaction is not in conflict with laws, regulations, decency or public order. Violations of certain provisions of GR 80 can be subject to administrative sanctions in the form of written warnings, inclusion on a priority supervision list, blacklisting, temporary blocking of domestic PPMSE services and/or foreign PPMSE services through authorised and related institutions, and/ or the revocation of the business license.
Electronic Systems & Transactions
In October 2019 the Indonesian government issued a new regulation to replace one that was passed in 2012 regarding the organisation of electronic systems and transactions: this new law was Government Regulation No. 71 of 2019 on (GR 71). One of the main factors behind the issuance of GR 71 was to ensure the acknowledgement and respect of private rights and freedoms. To this end, GR 71 introduced a right for owners of personal data to request from electronic system organisers their irrelevant electronic information and/or request that documents be erased; this is also known as the “right to be forgotten”.
In Indonesia the right to be forgotten consists of two main rights, namely the right to erasure and the right to de-listing. The request to erase irrelevant electronic information and/or documents, also known as the right to erasure, can be performed on personal data that meets the following requirements:
• It was obtained and processed without consent of the owner.
• Approval was withdrawn by the owner.
• The information was obtained and processed unlawfully.
• The information is no longer in accordance with the objectives of its original acquisition.
• The usage of the data in question has exceeded the agreed-to time.
• The display of the information has caused losses for the owner. In regards to the right to de-listing, the exclusion of irrelevant electronic information and/or documents from search engine listings can only be conducted through court decisions. Accordingly, the owner of the data must file a petition to the relevant court.
Land Rights Go Online
Regarding land regulations, the government recently introduced hak tanggungan (land rights collateral) services via electronic means (electronic-HT) through its issuing of Regulation No. 9 of 2019 (GR 9) by the Agrarian and Spatial Planning Ministry and the National Land Agency. This regulation was issued in order to improve hak tanggungan services that meet the principles of openness, timeliness, speed, convenience and affordability within the framework of public services, as well as to adjust the development of law and technology to meet the needs of the public.
Hak tanggungan services covered under GR 9 include registering for hak tanggungan, transferring hak tanggungan, changing the name of creditors and removing hak tanggungan. The electronic-HT system is only available for use by creditors and the governmental body providing the hak tanggungan services. A creditor first needs to be registered with the Financial Services Authority before it can become a user of electronic-HT. Under the procedures introduced by GR 9, all necessary documents should be submitted electronically, meaning that all information – whether in the form of analogue, digital, electromagnetic, optical or otherwise – must be able to be displayed and/or communicated through a computer or electronic system.
Following an application via electronic-HT, the system will issue a hak tanggungan certificate that contains an electronic signature. This certificate will be delivered to the applicant through the electronic-HT system and email.
E-Court Perfected
As a means of supporting the government in its effort to create a judiciary system that is simple, fast and low-cost, the Supreme Court has reformed administration and trial systems to overcome hurdles and obstacles that are typically encountered in the process of administering cases. To this end, the Supreme Court issued Regulation No. 1 of 2019 on administration of cases and legal proceedings in courts via electronic means (GR 1), which replaced the previous Supreme Court Regulation No. 3 of 2018 pertaining to the same matters. GR 1 is intended to be utilised as a legal basis for case and trial administration in the court system via electronic means to support the realisation of orderly, professional, transparent, accountable, effective, efficient and modern handling of cases.
The regulation requires that processes related to trials or other legal proceedings be conducted via electronic means (e-litigation) not only at the first level of legal proceedings, but also for appeals, cessations and judicial review requests. GR 1 also stipulates that e-litigation will encompass the following stages of legal proceedings: submission of claims, petitions, objections, rebuttals, oppositions, interventions, submission of answers, replies, rejoinders and conclusions. E-litigation will be used through the inquisitorial process all the way to the passing of judgments and stipulations.
In addition to the regulations that have already been issued, there are several other regulations that the government is currently working on that are a part of its wider effort to create conducive and fair business ecosystems in general, as well as provide legal protection and certainty with the aim of accelerating economic growth and increasing investment. These collective regulations are known as the omnibus laws.
Draft Omnibus Law
Combined with its efforts to create a conducive ecosystem for electronic transactions to grow and realise clean, effective, transparent and accountable governance, as well as quality and reliable public services, the government is also seeking to accelerate the country’s economic growth. According to a report by Statistics Indonesia (BPS), the country’s GDP grew at a rate of 5% year-on-year in the third quarter of 2019, which was below President Jokowi’s target of 7%.
One challenge that remains in boosting economic growth is the regulatory environment; many parties believe that there are various problems in this area, with certain segments being over regulated, a lack of harmony, overlapping regulations, non-operational regulations and sectoral ego. These problems have created legal uncertainty and inefficiency, decreased investment interests, lowered competitiveness, reduced employment opportunity, decreased public welfare, and led to overall government performance and development programmes functioning at less-than-optimal levels.
President Jokowi has outlined several objectives aimed at addressing these problems, which include:
• Streamlining, harmonising and simplifying regulations that are inconsistent or overlapping;
• Ensuring regulations do not hamper innovation, and are responsive and adaptive to new technological developments; and
• Designing regulations in a way that protect the interests of the people and the nation, and provide a sense of security and progress for the country. These combined objectives were ultimately turned into a draft for the omnibus law. Pursuant to Black’s Law Dictionary, an omnibus bill is defined as “a bill including in one act various separate and distinct matters, and particularly one joining a number of different subjects in one measure in such a way as to compel the executive authority to accept provisions which he does not approve or else defeat the whole enactment”.
Historically, the practice of passing omnibus bills has been applied in several common law system countries with the intention of improving regulatory matters as a means of enhancing the investment climate and competitiveness. In the context of Indonesia, omnibus bills have been utilised in the implementation of previous laws, including Law No. 9 of 2017 on the stipulation of the government regulation in lieu of Law No. 1 of 2017 on access of financial information for tax purposes. This revoked several articles under the tax law, bank law, capital markets law, commodity futures trading law and sharia bank law.
Omnibus Law on Employment
The Omnibus Law on Job Creation is expected to have a significant impact on the structure of the country’s economy, stimulating all sectors of business and driving GDP growth up to 5.7-6% through creating employment opportunities, increasing investment and improving productivity. As part of the strategy to create employment, the omnibus law aims to improve the investment ecosystem and further enable micro-, small and medium-sized enterprises (MSMEs) through (i) the simplification of licensing, (ii) establishing investment requirements, (iii) enacting regulations on manpower, (iv) improving the ease of doing business, (v) developing and empowering MSMEs, (vi) regulating economic zones, (vii) supporting research and innovation, (viii) simplifying the provision of land, and (ix) easing government projects.
As a legal result of the passage of Omnibus Law on Job Creation, there will be several laws whose articles will be revoked or declared invalid. These include laws on manpower, MSMEs, halal product guarantees, food, industry, trade, standardisation and conformity assessments, general provision and tax procedures, banking, limited liability companies, mandatory company registration, tourism, management of coastal areas and small islands, Indonesian export financing institutions, guarantees, foundations, immigration, patents, disturbances, the Indonesian commercial code, the Indonesian civil code, state-owned enterprises, regional governments, government administration, land procurement for development in the public interest, protection of agriculture land for sustainable food and special economic zones.
Omnibus Law on Tax Provisions
In order to support the Omnibus Law on Job Creation, the government has also announced its intention to issue an Omnibus Tax Law. The issuance of this additional Omnibus Tax Law was motivated by the need to respond to the challenges of a global economic slowdown and in consideration of the risk of stagnation in the Indonesian economy, namely the middle-income trap, as well as the goal to optimise Indonesia’s investment competitiveness.
Tax incentives that are provided by the government under the Omnibus Tax Law are (i) a reduction in the corporate income tax rate, (ii) the elimination of income tax on dividends from domestic and overseas dividends, (iii) the imposition of income tax against individuals, (iv) the relaxation of crediting rights on input tax, (v) the rearrangement of administrative sanctions, (vi) the provision of tax incentives, and (vii) the imposition of a tax on e-commerce activities.
The issuance of this Omnibus Tax Law is aimed at enhancing the conduciveness and attractiveness of the local business climate, increasing economic growth, guaranteeing legal certainty, encouraging taxpayer compliance and promoting business fairness (see Tax & Business chapter).
Draft Bill on Data Protection
The rapid development of technology has created various opportunities and challenges. It has significantly impacted day-to-day life and operations across various sectors, especially through the implementation of e-commerce in the trade and business sector, electronic health and education systems, and electronic government applications. As much as this offers immense benefits, the use of IT also comes with great risks. Since it is very easy for one’s personal data to be collected and transferred from one party to another without the knowledge of the owner, the right to privacy of the owner in regard to their personal data may be threatened.
The protection of personal data is considered within the protection of human rights as mandated by the Article 28G Paragraph 1 of the 1945 Constitution, which states that “every person has the right to protection of personal, family, honour, dignity, and property under their power, and is entitled to a sense of security and protection from the threat or fear of doing or not doing something that is a human right”. Therefore, regulations regarding the protection of personal data are a necessity. It is also believed that Indonesia stands to benefit from regulations on the protection of personal data, as this could accelerate transnational trade, industry and investment. Considering the magnitude of the impact that regulating personal data can have, it is imperative for the country to adopt such protections on a legal level, rather than regulations on just a ministerial level. The protection of personal data under Indonesian law is regulated by Regulation No. 20 of 2016 from the Ministry of Communication and Information Technology.
Indonesia stands to benefit from regulations on the protection of personal data, as this could accelerate transnational trade, industry and investment The scope of the current draft of the law on personal data protection also covers legal actions that are conducted outside the jurisdiction of Indonesia but have legal implications within the country and/or on Indonesian nationals as the owner of the personal data – regardless of whether or not they are located within Indonesia’s jurisdiction. The draft bill distinguishes personal data in terms of a general nature and in terms of a personal nature. Personal data of a general nature encompasses a person’s full name, gender, nationality, religion and other personal data that can be combined to identify an individual; personal data of a personal nature encompasses health information, biometrics, genetics, sexual orientation, political views, criminal records, child data, personal financial data and other data in accordance with laws and regulations.
Additionally, the draft bill grants rights to the owners of personal data, namely:
• The right to request information about identity, legal interests, the purpose of the request and use of personal data, as well as the accountability of the party requesting the personal data;
• The right to access their personal data;
• The right to end the processing, to erase and/or destroy their personal data;
• The right to withdraw approval for processing of their personal data given to the controller of such data, the party that determines the purpose of and has control over the processing of personal data;
• The right to object to decisions based only on automatic processing related to one’s profile;
• The right to make claims and receive compensation for violations of use of their personal data; and
• The right to obtain and/or use their personal data from the personal data controller. The exercise of these rights does not apply to national defence or security interests; law enforcement processes; the public interest as it pertains to state administration; the interests of overseeing financial services; the stability of monetary, payment and financial systems; and data aggregation for the purpose of statistical and scientific research within the context of state administration.
The processing of personal data should be initiated based solely on the approval of its owner, whose consent encompasses the acquisition, collection, processing, analysing, retention, repairs, updates, display, publication, transmission, transfer, dissemination, distribution, disclosure and/or erasure or destruction of their personal data. The processing of this personal data is to be done in accordance with the principles of protecting such data:
• The collection of personal data is carried out in a limited and specific manner, and is legally valid, appropriate and transparent.
• The processing of personal data is carried out according to its purpose.
• The processing of personal data is carried out after guaranteeing the rights of the owner of the data.
• The processing of personal data is carried out accurately and completely, is not misleading, is up to date and can be accounted for.
• The processing of personal data is carried out while protecting the data from unauthorised access, unauthorised disclosure, unauthorised alteration, misuse, destruction and/or potential loss.
• The processing of personal data includes a notification regarding the purpose and activity of the processing, as well as any failures to protect the data;
• The personal data is destroyed and/or deleted after the retention period ends or following a request of the owner, unless otherwise stipulated by law.
• The processing of personal data is carried out responsibly by fully implementing the principles of protecting the data and can be clearly proven. The draft bill also provides a set of prohibitions that are intended to provide protection from unlawful processing of personal data, which stipulate:
• Every person is prohibited from obtaining or collecting personal data that is not their own with the intent of unlawfully benefitting themselves or others, or that could result in the loss of the personal data owner.
• Every person is prohibited from unlawfully disclosing personal data that is not theirs.
• Every person is prohibited from unlawfully using personal data that is not theirs.
• Every person is prohibited from unlawfully installing and/or operating visual data processing or processing devices in public places or public service facilities that can threaten and/or violate the protection of personal data.
• Every person is prohibited from unlawfully using a visual data processing or other processing device installed in a public place and/or public service facility used to identify a person.
• Every person is prohibited from falsifying personal data with the intent of benefitting oneself or others or that has the potential to cause harm to others.
• Every person is prohibited from selling or buying personal data. Violations of articles pertaining to prohibitions under the draft bill are subject to imprisonment ranging from one to seven years, or a criminal fine ranging from Rp10bn ($705,000) to Rp70bn ($4.9m).
OBG would like to thank Lubis Santosa & Maramis for its contribution to THE REPORT Indonesia 2020
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