P2P lending in regulatory shake-up

Indonesia faces massive changes in its digital economy with the expected enactment of the PPSK Bill this 2023, which introduces broad changes to important regulations for the country’s financial and fintech sectors.

The bill is expected to amend at least 15 existing laws related to digital finance and digital payments as well as introduce a new regulatory framework that will create an integrated fintech ecosystem, according to a review by Linklaters.

One of the biggest changes that the PPSK bill introduces is an amendment to the currency law to include digital Indonesian rupiah as a type of currency, in addition to bills and coins.

According to the bill, the digital rupiah shall be issued by BI upon coordination with the government and by considering monetary conditions, fraud risk mitigation and data protection.

Cryptoassets

Amongst industries most affected by the sweeping changes are cryptoassets.

In 2022, the Commodity Futures and Trading Supervisory Agency or BAPPEBTI of Indonesia discontinued issuing registration licenses to potential crypto asset traders.

BAPPEBTI also expanded the list of tradable crypto assets in the physical market from 229 to 383 assets.

No provision in the PPSK Bill that acknowledges and allows cryptocurrency, according to Linklaters. Instead, the PPSK Bill classified crypto assets and directs it under the authority of the Bank Indonesia (BI) and the Financial Services Authority (OJK), instead of a commodity under BAPPEBTI.

Fintech taxes will begin to apply in 2023. Crypto asset transactions will be subject to VAT. Crypto asset-related income is subject to income tax.

Lenders also face a new taxation scheme. The local Minister of Finance (MOF) has stipulated crypto assets transactionsThe MOF has also issued a regulation imposing income tax on income derived from loan interest obtained by lenders–15% for domestic taxpayers and permanent establishments; 20% for foreign taxpayers–to be withheld by the licensed P2P lending organiser and 11% VAT on fintech services. The latter includes e-money, e-wallets, P2P lending and payment gateways, Linklaters noted.

Lending

Indonesia also now requires P2P (peer-to-peer) lenders and organisers to be licensed by the OJK. They also must now register as an “electronic system organiser” with the Ministry of Communication and Informatics.

The regulation covers the minimum paid-up capital for the P2P lending services of IDR25 billion upon establishment (with equity maintained at minimum IDR2,5 billion up to 4 July 2023) and the maximum 85% foreign ownership, according to Linklaters.

Any change of ownership of the organiser will need to be approved by the OJK.

Privacy law changes

Apart from changes in taxation and regulation, Indonesia has also recently issued a Data Protection Law, the first overarching regulation on data protection in Indonesia. The move marks a new era for privacy law, according to Linklaters.