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Indonesian Govt bans direct transactions on social e-commerce platforms

The Indonesian government has decided to ban direct transactions on social media platforms with the aim to safeguard data and maintain a level playing field in a rapidly growing digital marketplace.

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INDONESIA: In a move aimed at curbing the influence of social e-commerce and protecting data privacy, the Indonesian government has decided to ban direct transactions on social media platforms.

This decision was made during a restricted meeting led by President Joko Widodo at the Presidential Palace in Jakarta on Monday (25 Sep).

Minister of Trade Zulkifli Hasan, who attended the meeting, emphasized that social e-commerce platforms would now only be allowed to facilitate the promotion of goods and services. Direct transactions and payments on these platforms will be prohibited. “Social e-commerce can only facilitate promotions, just like TV advertisements, but they cannot engage in sales or accept payments. They are digital platforms whose task is to promote,” Minister Zulkifli explained.

One of the key reasons behind this decision is to prevent social e-commerce platforms from having full control over algorithms.

Additionally, the government aims to prevent the misuse of personal data for business purposes.

These changes will be incorporated into a revised version of Minister of Trade Regulation (Permendag) No. 50 of 2023, and Minister Zulkifli stated that the revised regulation would be signed soon.

The revised Permendag will include a “positive list” of permissible imported goods, and it will specify that imported items must meet the same standards as domestically produced goods.

For example, imported food items must have halal certification, while skincare or beauty products must have approval from the Indonesian Food and Drug Authority (BPOM RI).

Furthermore, the revised regulation will prohibit the sale of imported goods priced below $100 USD or approximately Rp 1.54 million.

Social e-commerce platforms that violate these rules will receive warnings from the Ministry of Communication and Information, and repeat offenders will face closure, as emphasized by Minister Zulkifli.

Minister of Trade (Mendag) Zulkifli Hasan after a meeting with President Joko Widodo, also known as Jokowi, at the Presidential Palace Complex in Jakarta on Monday (25 Sep). (Photo: Liputan6.com)

In a separate development, Deputy Minister of Trade Jerry Sambuaga confirmed that social media platforms and e-commerce, such as TikTok, would be separated in the revised Minister of Trade Regulation No. 50 of 2020.

He mentioned that this separation is essential because each type of platform must adhere to its respective regulations. TikTok claims to be a social media platform, not an e-commerce platform, and thus cannot simultaneously perform both functions.

Allowing TikTok or similar platforms to operate as both social media and e-commerce platforms would create an unfair advantage for them over dedicated e-commerce platforms like Shopee, Tokopedia, and Bli-bli.

The Institute for Development of Economics and Finance (INDEF) has raised concerns about the impact of these changes on Indonesia’s digital economy.

INDEF’s Head of Digital Economy and SME Research, Nailul Huda, pointed out that social commerce has seen significant growth since 2019, as per data from the Central Statistics Agency (BPS).

Huda argued that banning TikTok Shop and similar platforms could hinder the development of digital small and medium-sized enterprises (UMKM) in the country.

President Joko Widodo acknowledged the declining revenue in traditional markets due to the rise of online commerce, specifically social e-commerce.

He noted that this trend has negatively affected micro, small, and medium-sized enterprises (UMKM), as well as local production.

“Because we know it affects Micro, Small, and Medium Enterprises (MSMEs), as well as production in small businesses, micro-enterprises, and also in the market.

In some markets, there has been a decline due to the onslaught of social e-commerce,” Jokowi said in the Nusantara Capital Region (IKN) of East Kalimantan, as reported by the Presidential Secretariat’s press release on Saturday (23 Sep).

The president assured that regulations to control social media-based e-commerce would be introduced soon.

“This is still being prepared (the regulations), and it involves multiple ministries, and it is currently being finalized at the Ministry of Trade (Kemendag),” he said.

“Ideally, it should be categorized as social media, not media economics, and that is what will be resolved soon,” he added.

In response to these changes, TikTok Indonesia stated that they have received numerous complaints from local sellers seeking clarity on the new regulations.

The platform emphasized that TikTok Shop was established to assist UMKM in marketing their products to consumers.

While TikTok Indonesia intends to comply with Indonesian laws and regulations, they also hope the government will reconsider the potential impact of these policies on the livelihoods of approximately six million local sellers and nearly seven million affiliate creators who use TikTok Shop.

Senior researcher at the Center for Economic Policy Research (PPKE) at the Faculty of Economics and Business, University of Brawijaya, Joko Budi Santoso, believes that controlling social media-based e-commerce is necessary to protect domestic businesses.

He emphasized that these regulations would also benefit consumers by ensuring the quality and safety of products through certifications such as BPOM and halal certification.

Budi added that TikTok’s algorithms can influence consumer behavior, transitioning them from offline to online shopping due to frequent product advertisements and trends. However, he noted that the presence of TikTok as a social commerce platform has both positive and negative consequences.

While it offers a cost-effective way for UMKM to expand its reach, it can also pose a challenge to those unable to adapt to rapidly evolving technology, potentially impacting domestic industries that cannot compete with cheap Chinese imports.

As the government moves forward with these regulations, it remains to be seen how they will affect the landscape of social e-commerce in Indonesia and the livelihoods of those involved in this rapidly growing sector.

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