Despite earning millions from Indonesian viewers, Netflix pays no local tax due to lack of physical presence.
TLDR:
- Netflix avoids income tax in Indonesia by billing users through offices in Singapore and the Netherlands.
- Indonesia’s tax laws require a physical presence to enforce taxation, leaving foreign digital firms untaxed.
- Global tax reforms like OECD’s Pillar 1 remain stalled, largely due to the United States not joining.
- Local users pay subscription fees that do not contribute to Indonesia’s tax base.
What Happened?
Netflix is not paying any taxes in Indonesia despite earning significant revenue from local subscribers. This gap exists because Indonesia currently has no legal mechanism to tax digital platforms that operate without a physical office in the country.
Netflix Avoids Tax Through Offshore Billing
Indonesian users are billed by Netflix through the company’s offices in Singapore or the Netherlands, which legally places those transactions outside the reach of Indonesia’s tax laws. As a result, even though millions of Indonesians use the platform, Netflix contributes nothing to Indonesia’s income tax system.
This situation was confirmed by Melani Dewi Astuti, a senior international tax analyst at the Ministry of Finance. “Without local offices, these companies fall outside our conventional tax system,” she explained.
In contrast, global tech companies like Apple and Google, which do maintain offices in Indonesia, are at least required to pay value-added tax (VAT) on their user transactions. However, even these companies are not subjected to income tax unless their operations are physically rooted in Indonesia.
The Global Tax Challenge
The problem is not unique to Indonesia. Countries across the world are struggling with how to tax foreign digital services that generate significant local income without any physical footprint.
To address this, the OECD and G20 introduced the Pillar 1 framework, a proposal that allows governments to tax companies based on their economic activity in a country, regardless of where the company is headquartered.
However, implementation of Pillar 1 has stalled. A major obstacle is the United States’ refusal to participate, which has slowed global momentum. Astuti emphasized that the inability to tax these digital giants is not due to a lack of will. “It is a structural challenge that requires international cooperation to resolve,” she said.
Streaming Revenues Soar While Tax Gaps Widen
The issue is gaining urgency as platforms like Netflix continue to grow in both user base and revenue across Southeast Asia. In May 2025, Netflix increased prices in Korea, bumping its Basic and Standard with Ads plans by up to 27.3%. While that change occurred abroad, it signals a broader trend where platforms seek higher revenue from users while operating in jurisdictions with limited taxation powers.
This model, where companies operate digitally and bill users internationally, makes it nearly impossible for countries like Indonesia to capture a fair share of taxes, even when consumption clearly happens on their soil.
Indonesia’s Tax Reform Hopes
Indonesia is currently exploring ways to modernize its tax laws for the digital economy. But until frameworks like Pillar 1 are adopted globally, the country remains powerless to collect income taxes from foreign digital platforms, no matter how much money they make from Indonesian users.
Meanwhile, local users of Netflix and similar streaming services continue to pay for subscriptions that benefit the company but not the Indonesian tax base, highlighting a growing disconnect between economic activity and tax responsibility.
What TechKV Thinks?
Honestly, this is frustrating. Watching millions flow out of the country without any tax contribution feels like a digital loophole that shouldn’t exist in 2025. As a tech platform, Netflix is leveraging every legal advantage, but that leaves countries like Indonesia scrambling to catch up.
If global cooperation keeps stalling, maybe it’s time for Indonesia and others to take bold unilateral steps. The digital economy is borderless, but taxation shouldn’t be. Local economies deserve better.
