In the digital economy, tax authorities generally engage with third-party platforms through two distinct methods, i.e., a withholding tax system and an information sharing system. Under a withholding tax system, third parties calculate, withhold, and remit taxes on facilitated transactions. For instance, Minister of Finance Regulation Number 37 of 2025 assigns e-commerce marketplaces to withhold a 0.5% income tax on gross merchant sales.
While upfront withholding accelerates state revenue, using gross revenue as the base ignores merchants’ operational costs and net profit margins. It potentially drains working capital and liquidity for low-margin sellers. It also imposes heavy compliance burdens on marketplaces, including managing funds, issuing withholding tax slips, and processing canceled orders or refunds.
Conversely, an information sharing system or third-party information reporting (TPIR) does not require platforms to withhold funds. Platforms verify user identities and regularly report transaction data to the tax authority.
Taxpayers are responsible for paying taxes under a self-assessment model. Tax authorities use this third-party data to match records and detect non-compliance without directly disrupting taxpayers' cash flows.
Enhancing Compliance
Third-party reporting offers an empirical approach to improving tax compliance. Data from the U.S. Internal Revenue Service (IRS) reveals a 63% misreporting rate for income lacking third-party reporting, which drops dramatically to 7% when third parties fully report income.
Such reporting reduces information asymmetry between taxpayers and tax authorities. When tax authorities receive external transaction feeds, opportunities for underreporting income shrink.
On the other hand, designating marketplaces as tax collectors increases legal and administrative risks for platforms. Imposing collection duties that burden sellers also risks driving some businesses into harder-to-track informal channels.
OECD and DAC7
In 2020, the OECD laid out Model Rules for Reporting by Platform Operators. The system emphasizes platform transparency and data reporting to the tax authority. It comprises property rentals, personal services, and goods sales.
Platforms conduct due diligence to verify seller identities and report other data, such as sellers' identities, gross transaction values, deducted fees, and financial account details. OECD exempts several sellers from reporting obligations, including large hotel chains with over 2,000 annual transactions, government entities, and publicly traded companies.
The European Union has also been applying the approach since January 1, 2023, through Council Directive (EU) 2021/514, also known as DAC7. DAC7 mandates annual seller data gathering and reporting to the tax authority.
DAC7 does not create new taxes or alter income tax liabilities. Instead, the directive governs transparency and administrative cooperation. Additionally, sellers performing under 30 transactions in a year with a total annual sales of EUR 2,000 are exempt from reporting.
Its implementation varies by system across countries. France uses platform data for compliance auditing, the Netherlands evaluates whether transactions constitute taxable income or merely a hobby, and Estonia uses DAC7 feeds to populate pre-filled tax returns. All without turning platforms into tax collectors.
Coretax as Data Infrastructure
The DGT’s Coretax administration system provides the technical architecture necessary to utilize marketplaces as reporting intermediaries for the tax authority. Coretax uses national identification number (nomor induk kependudukan/NIK) as the primary taxpayer identification number (nomor pokok wajib pajak/NPWP) and unifies taxpayer data through Taxpayer Account Management (TAM), including reporting data, payment history, and information from government agencies, institutions, associations, and other third parties.
Marketplace transaction data further enrich these profiles. The DGT can cross-match the transaction data against annual revenue reported in tax returns using Compliance Risk Management (CRM). Any discrepancies will trigger a request for an explanation of data and/or information (surat permintaan penjelasan data dan/atau keterangan/SP2DK).
The data can also power pre-populated tax returns. Under this scheme, merchants verify the revenue recorded in Coretax, factor in operational expenses if using standard bookkeeping, and subsequently compute and pay their taxes accordingly.
Conclusion
The postponement of the marketplace Article 22 income tax until October 31, 2026, offers an opportunity to re-evaluate digital economy tax administration.
Drawing on TPIR principles, OECD recommendations, DAC7, and Coretax capabilities, marketplaces need not act as withholding agents. Their role should be solely as reporting intermediaries.
Transitioning from a 0.5% gross withholding obligation to periodic transaction reporting enables the government to access necessary information to monitor compliance. It also simultaneously protects merchant cash flow and allows taxation to consider taxpayers' income characteristics.
Also Read:
Complete List of Tax Account Codes and Tax Payment Type Codes for e-Billing
DGT Regulation Number 11 of 2025
Breaking Down the Article 21 Withholding Tax Provisions