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E-commerce development in Indonesia is rapid with the growing consumer class and their quick adaption to the internet. E-commerce also pushes efficiency and creates new jobs as they facilitate transactions and provides opportunity for small merchants to connect to their customers directly. E-commerce itself constantly evolve to address the everyday problems. The relatively new e-commerce development had been less regulated compared to its conventional peers, until the government introduced the Government Regulation/PP no. 80/2019 that governs e-commerce businesses.

The new regulation defines parties involved in e-commerce based on their function: merchants, e-commerce operators (platform operators), and mediators (such as web hosting). The regulation also sets several legal requirements for e-commerce businesses such as business licensing, provision of data to policymakers, and obligation of consumer protection (i.e. customer service contact line). However, we argue that this regulation may add more bureaucratic procedures while not being accurate at regulating the subject (e-commerce businesses).

The problem with the regulation can stem from the lack of detailed classification on e-commerce based on their business model. There are various kind of e-commerce business model: B2C/e-retailer, C2C/marketplace, and classified ads/social commerce. Each has different functionalities and may not be able to fulfil all obligations and criteria set in the regulation. For example, while e-retailers have control over transactions that happen in their platform, not so for classified ads as they don’t facilitate transactions (aside from the advertisement fees). Hence, it will be difficult to hold them accountable for transaction that happens between the advertisers and customers.

Furthermore, other requirements can be costly for businesses. First, mandatory business permit including for merchants. This will deter micro businesses and individuals that only use the platform to conduct occasional (non-recurring) transactions. Second, the mandatory use of Indonesia-based web domain (.id) which not only add more bureaucratic procedures for business, it may limit Indonesian customers to access international e-commerce platforms, vice versa.

However, there is still room for the regulation to be improved in the future ministerial bylaw of the regulation. The government must map the e-commerce business models (i.e. e-retailer, marketplace, classified ads, etc.) and tailor the obligation to their business functions while being responsive to the constantly evolving business model of e-commerce to provide flexibility and reducing the cost of compliance. Regarding the mandatory business permit, the government can also consider thresholds that are already set by various e-commerce platforms for their merchants (i.e. minimum amount of transactions to be considered as a ‘business’).

Our policy brief on PP no. 80/2019 can be found here.