Indonesia plans to ban social media transactions, drawing criticism from TikTok

INDONESIA: The Indonesian government’s proposal to ban buying and selling transactions on social media has sparked criticism from TikTok, an app frequently used by its users as a platform for e-commerce.

This move comes after several government officials in recent weeks have called for the separation of social media and e-commerce, alleging that social media apps like TikTok engage in monopolistic practices that threaten local businesses and small enterprises.

In a parliamentary hearing on Tuesday (12 Sep), Deputy Minister of Trade Jerry Sambuaga stated that the Indonesian government plans to prohibit the sale of goods on social media based on the latest trade regulations.

The current trade regulations do not specifically address transactions on social media, and Jerry emphasized that the ongoing revision of trade regulations would explicitly prohibit such activities.

Furthermore, Jerry pointed out that there are currently few regulations regarding e-commerce on social media platforms. Therefore, changes are being made to the existing trade laws to address this issue.

“Social media and social commerce cannot be combined,” he asserted, citing the numerous sellers who use the “live” feature on TikTok to market their products.

Over the past year, social media users in Indonesia have spent more money on TikTok than in any other Southeast Asian country. This is in tandem with the rapid growth of e-commerce features within the app since its launch in 2021, attracting millions of sellers to capture a substantial regional market share.

Meanwhile, Trade Minister Zulkifli Hasan told reporters on Monday (11 Sep) that the law revision would require companies to apply for separate licenses for social media and e-commerce operations.

Zulkifli Hasan mentioned that the Ministry of Trade has developed policies to regulate TikTok Shop, aiming to protect domestic industries, especially micro, small, and medium-sized enterprises (MSMEs).

He disclosed that he had met with numerous domestic entrepreneurs who expressed concerns about the negative impact of TikTok Shop on their businesses.

“Many have approached me – beauty, MSMEs, fashion, you name it. They say they are facing a massive influx from abroad. So, we need to address this,” Zulkifli Hasan stated on Monday (11 Sep).

Currently, the Ministry of Trade has drafted regulations, and the next steps involve discussions and consultations with other relevant ministries. Afterward, it will be forwarded to the State Secretariat Ministry for harmonization with existing regulations.

The Ministry of Trade has proposed several key points regarding TikTok Shop policy, including allowing the sale of products that Indonesia cannot produce, prohibiting the use of a single license for both social media and e-commerce, requiring products for sale to have standard permits or Indonesian National Standards (SNI), and imposing a minimum USD 100 purchase for imports in a single transaction.

Minister of Cooperatives and SMEs Teten Masduki also stressed that companies should not merge social media and e-commerce and warned against TikTok becoming a “monopoly.”

This Indonesian move follows bans imposed by several other countries, including the United States and India, on TikTok conducting both social media and e-commerce businesses concurrently. In contrast, Indonesia allows TikTok to operate both businesses simultaneously.

However, TikTok can still engage in sales but not combine them with social media activities to prevent monopolistic practices that harm domestic MSMEs. Minister Teten explained that research showed that online shopping was influenced by social media interactions, and TikTok‘s control over payment systems and logistics created a monopoly.

Additionally, Minister Teten plans to regulate cross-border commerce to ensure domestic MSMEs can compete in Indonesia’s digital market.

Foreign retailers will be required to go through the standard import process before selling their products in the Indonesian digital market. This aims to level the playing field, as Indonesian MSMEs must navigate permits, Indonesian Nationa Standard (SNI), halal certification, and more.

Moreover, Minister Teten emphasized the need for the government to restrict imports of products that can be manufactured locally, regardless of their price. This will encourage domestic production by Indonesian MSMEs.

On Wednesday (13 Sep), TikTok criticized Indonesia’s policy to ban social media transactions, asserting that separating social media and e-commerce into different platforms would hinder innovation.

TikTok Indonesia spokesperson Anggini Setiawan stated, “Forcing the separation of social media and e-commerce into different platforms not only hampers innovation but also harms traders and consumers in Indonesia,” as quoted by Reuters. Anggini also called on the Indonesian government to “provide equal competitive space” for TikTok.

According to TikTok, the app boasts 325 million active users in Southeast Asia each month, with 125 million in Indonesia alone. Presently, there are two million small businesses on TikTok Shop in Indonesia.

As of now, Meta, the parent company of social media giants Facebook and Instagram, which also operate e-commerce platforms, has not issued a response to these developments.

E-commerce transactions in Indonesia accounted for nearly USD 52 billion last year, with TikTok accounting for 5% of these transactions, primarily through live-streaming platforms.

Nailul Huda, an economist from the Institute for Development of Economics and Finance (INDEF), noted that social commerce is challenging to regulate completely due to the nature of social media interactions. However, he emphasized the importance of regulating social commerce similarly to e-commerce, especially regarding taxation.

Regarding the potential impact on local MSMEs, Huda focused on imports. He distinguished between two types of imported goods in the online market: cross-border commerce and products sold by local sellers using domestic shipping.

While the policy of restricting imports to products under USD 100 would be effective for cross-border commerce, it would not significantly impact the latter category.

Huda added that if imports were to occur, they should follow the standard import process rather than going through e-commerce platforms. This would add value to trade. He also stressed the importance of the government’s role in regulating product prices for imported goods.

Huda concluded that prohibiting sales on TikTok Shop was unlikely, as social commerce has existed for a long time in Indonesia through platforms like Kaskus.