The information and communications sector grew 6.97% in the second quarter of 2026, making it one of the main drivers of Indonesia’s gross domestic product (GDP). The growth has been supported by the development of data center infrastructure to meet rising demand for cloud computing and artificial intelligence (AI).
Demand for large-scale data centers in Indonesia continues to rise, driven by global AI adoption and data localization policies. The trend presents investment opportunities to address the country’s computing capacity deficit. At the same time, however, Indonesia needs to align its fiscal incentives with the implementation of the global minimum tax (GMT).
Coordinating Minister for Economic Affairs Airlangga Hartarto said the development of digital infrastructure is an important part of the national economic growth agenda.
“Resilient digital infrastructure, including data centers, AI, and cybersecurity, is the foundation that will support Indonesia’s sustainable economic growth,” Airlangga said in a statement issued in Jakarta on Thursday (Aug. 27, 2026).
He said strengthening the digital ecosystem is essential to advancing the national digital economy. The use of technology must also deliver measurable benefits to society.
“The most important thing is how we turn AI, digital twins, and digital technologies into tangible benefits for productivity, competitiveness, public services, and people’s quality of life,” he said.
Amid rising demand, Indonesia still faces limited data center capacity. This constraint will determine how much of the investment opportunity can be capitalized on and how quickly Indonesia can catch up with regional data center hubs such as Singapore and Malaysia.
Capacity Deficit
Indonesia’s installed data center capacity remains below that of Singapore and Malaysia. Singapore has approximately 1.4 gigawatts (GW) of capacity, although its expansion is currently constrained by a moratorium on land and energy availability.
Malaysia, particularly Johor, has benefited from spillover demand from Singapore. Data center capacity in the area has reached approximately 1.3 GW.
As of August 2026, Indonesia had approximately 580-650 megawatts (MW) of installed capacity, still well below the two regional data center hubs. However, Indonesia’s capacity is expanding rapidly. The industry is targeting capacity of 3.5 GW by 2030, representing a compound annual growth rate (CAGR) of 56.7% per year.
New investment flows are reinforcing the outlook. Between April and August 2026, four global AI infrastructure players announced plans to build facilities in Indonesia, with combined capacity of 2,170 MW.
The challenge is that demand growth has yet to be matched by available capacity, creating a shortage in the domestic market.
Chief Technology Officer (CTO) of the Danantara Indonesia Investment Management Agency (BPI) Sigit Puji Santosa described the strength of demand firsthand.
“If we build 100 MW or 200 MW, it gets taken up immediately,” Sigit said.
The capacity constraint is also affecting cloud computing customers.
“Demand for data centers is extraordinarily high, resulting in shortages. Customers have to wait six months, nine months, or even a year,” he explained.
The situation is prompting aggressive expansion among domestic data center operators. PT DCI Indonesia Tbk (DCII) currently has 128 MW of live capacity and is targeting more than 2,000 MW of capacity across Cibitung, Karawang, and Bintan.
PT Telkom Indonesia Tbk (TLKM), through NeutraDC, is targeting capacity of 300 to 500 MW by 2030. PT Indosat Tbk (ISAT), through its joint venture BDx Indonesia, operates 150 MW of capacity.
New players are also entering the AI segment. PT Dian Swastatika Sentosa Tbk (DSSA) has allocated US$300 million to develop the 60-MW AI-ready SMX01 facility in Jakarta.
Energy Demand
The expansion of data centers carries significant implications for energy demand. Adding up to 2,000 MW of capacity is equivalent to the peak load consumption of a large-scale power plant.
The challenge is that around 85% of Indonesia’s primary energy mix still comes from fossil fuels, particularly coal. AI data centers require more energy because they use high-density graphic processing units (GPUs). These facilities also require liquid cooling systems to maintain equipment performance.
At the same time, global investors are placing greater emphasis on net-zero emission targets. As a result, electricity availability is no longer simply a matter of supply volume, but also of the source of that energy.
The government needs to accelerate renewable energy deployment through power purchase agreements (PPAs) with PT Perusahaan Listrik Negara (PLN), or by revising the Electricity Supply Business Plan (RUPTL) to create greater room for clean energy.
Without adequate renewable energy support, some data center investments could face delays because they may not meet the environmental, social, and governance (ESG) standards required by foreign investors.
Rising electricity consumption also creates opportunities for local government revenue. Increased electricity use by data centers could boost the goods and services tax (GST) on electricity.
Regions hosting major industrial clusters, such as Bekasi and Purwakarta districts, could optimize this revenue from the operation of AI data centers.
In Batam, the Batam Indonesia Free Zone Authority (BP Batam) projects potential non-tax state revenue (PNBP) from land leases and utility fees of IDR 2 trillion to IDR 3 trillion per year.
Expanding the Digital Tax Base
The development of data centers is also closely linked to the growth of digital transactions. Local servers not only reduce latency but could also help tax authorities monitor digital economic activity.
The Directorate General of Taxes (DGT) recorded tax revenue from the digital economy at IDR 54.71 trillion as of June 30, 2026.
The revenue has mainly come from Value Added Tax (VAT) on Trade Through Electronic Systems (PMSE). A total of 271 foreign digital companies have been appointed as VAT collectors. In the first half of 2026, digital tax revenue reached IDR 8.68 trillion.
The size of this revenue indicates that the digital economy has become a significant source of tax receipts. Its potential remains substantial as e-commerce transactions are projected to reach IDR 487 trillion.
Greater data center capacity and data analytics infrastructure could help tax authorities monitor transactions more effectively. In this way, data center development serves not only as infrastructure for the digital economy but also as a means of strengthening the tax base.
Reshaping Investment Incentives
The next challenge is how Indonesia can continue to attract investment as global tax rules change. On May 4, 2026, the DGT issued Regulation of the Director General of Taxes Number PER-6/PJ/2026, providing technical rules for the implementation of the Global Minimum Tax (GMT), also known as the Global Anti-Base Erosion Rules (GloBE).
The regulation applies to multinational enterprises (MNEs) with consolidated global revenue of at least EUR 750 million. These companies are required to have an effective tax rate (ETR) of at least 15% in each jurisdiction where they operate.
If a company’s ETR in Indonesia falls below 15%, the shortfall may be collected by the company’s home country under the Income Inclusion Rule (IIR), or by another jurisdiction under the Undertaxed Payment Rule (UTPR). The provision changes the effectiveness of tax holidays as an investment instrument in Indonesia.
Previously, the government could provide up to 100% corporate income tax exemption for five to 20 years for investments in pioneer industries. Under the GMT regime, however, a 100% tax holiday could reduce a company’s ETR in Indonesia to zero.
Companies are still required to meet the 15% minimum tax rate. If the tax paid in Indonesia falls below that threshold, the difference may be collected by another country. This means incentives provided by Indonesia may not generate commensurate fiscal benefits for the country.
Director General of Taxes Bimo Wijayanto said the implementation of the GMT would shift competition over corporate tax incentives away from tax holidays and tax allowances toward refundable tax credits.
The change requires the government to rethink its investment incentive strategy. Tax exemptions alone will no longer be enough to attract investors. Indonesia needs to offer incentives that remain attractive to investors while ensuring that the country does not lose their economic benefits through the GMT mechanism.
Indonesia has a large digital market and rapidly growing demand for data center capacity. However, the ability to turn these opportunities into long-term investment will depend heavily on the readiness of energy infrastructure, policy certainty, and well-designed fiscal incentives.
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