The Indonesian Standard Classification of Business Fields (KBLI) 2015 ("KBLI 2015") was issued in Regulation of the Head of the Central Board of Statistics of the Republic of Indonesia No. 95 of 2015, which came into effect on 1 October 2015 ("Perka BPS 95"). This classification is based on the International Standard Industrial Classification of All Economic Activities (ISIC) Rev. 4 issued by the United Nations Statistics Division (UNSD) in 2008. According to Article 1 of Perka BPS 95, KBLI 2015 was issued to standardise the concepts, definitions, and classification of business fields, so that in future practice a company could make its business field, purpose and objectives clear. In practice, the business sectors explained in detail in KBLI 2015 will be become the basis for determining the business sectors which are closed and conditionally open for foreign investors, better known as the "Negative Investment List" ("DNI"), as provided in Presidential Regulations, most recently in Presidential Regulation No. 39 of 2014 ("Perpres 39/2014"). The next question is, what legal impact will the issuance of KBLI 2015 have on e-commerce investment in Indonesia? Up till now the position of the Government, in particular the Investment Coordinating Board, has been to prohibit foreign direct investment in the retail trade.
Definition of e-commerce
Before taking the discussion any further, we should first look at the understanding of e-commerce business in KBLI 2015 in order to understand the basis for its classification. Definitions of e-commerce from various sources follow:
- "Production units receive orders and transact the sale of goods and services produced by a variety of non conventional means, such as by telephone, fax, television or over the Internet. Many countries have chosen to describe as e-commerce any business transaction that transfers the ownership of the goods or service through the Internet or by other electronic means. Broadly speaking, there are three stages in the transfer of the ownership of a good or service: (a) the placement of the order, (b) the payment and (c) the delivery of the good or service. E-commerce transactions may be defined to include situations where only the first stage, only the first and second stages, or all three stages are conducted through the Internet or by other electronic means.
For many production units, e-commerce is just one of a variety of means by which sales are transacted. The rules for the classification of such units in KBLI 2015 remain unchanged: they are classified to the industry of their principal activity. Increasingly, however, business units that sell goods and supply services exclusively through the Internet are coming into existence. Such units should also be classified to the industry of their principal activity. Production units engaged in e-commerce will therefore be found in various industries in KBLI 2015. As an exception to this rule: in retail trade, units that undertake their sales exclusively or predominantly through the Internet are classified within KBLI 2015 subclass 4791 (Retail sale via mail order houses or via Internet)." (Page 33, section 3.3.3, KBLI 2015)
- "A type of business model, or segment of a larger business model, that enables a firm or individual to conduct business over an electronic network, typically the internet. Electronic commerce operates in all four of the major market segments: business to business, business to consumer, consumer to consumer and consumer to business. It can be thought of as a more advanced form of mail-order purchasing through a catalog. Almost any product or service can be offered via e-commerce, from books and music to financial services and plane tickets." (Investopedia,http://www.investopedia.com/terms/e/ecommerce.asp).
- "Business conducted through the use of computers, telephones, fax machines, barcode readers, credit cards, automated teller machines (ATM) or other electronic appliances (whether or not using the internet) without the exchange of paper-based documents. It includes activities such as procurement, order entry, transaction processing, payment, authentication and non-repudiation, inventory control, order fulfillment, and customer support. When a buyer pays with a bank card swiped through a magnetic stripe-reader, he or she is participating in e-commerce." (Business Dictionary,http://www.businessdictionary.com/definition/electronic-commerce-E-Commerce.html).
It can be seen from a comparison of the above definitions that the KBLI 2015's explanation in the first paragraph does understand the essence of e-commerce correctly. However, the second paragraph of the explanation with regard to the classification of e-commerce business seems to only look at the end activities by which the seller engages in retail trade with a consumer.
What is more, the first paragraph also says that broadly speaking there are 3 (three) stages in the transfer of ownership of a good or service in e-commerce, viz.: (1) the order, (2) the payment, and (3) the delivery of the good or service, by which definition the term e-commerce could cover a situation where only the first stage (the order) is conducted via the internet or other electronic means or a situation where all three stages are so conducted. However, the classification in KBLI 2015 seems to ignore (at least) two of the three stages in the business concept of the transfer of ownership of a good or service in e-commerce as if e-commerce was only related to the business concept in the first stage (the order).
For example the classification ignores:
- e-commerce where the website serves as a (e-)marketplace where the merchant, the owner of the payment system, and/or the producer are different parties; and
- e-commerce which also provides a checkout medium or method of payment through the e-commerce website itself (another business class which only covers stage 1(the order) and stage 2 (payment)) and only looks at the final stage, i.e., e-commerce as a retail merchant.
The Classification in KBLI 2015
In-depth research and information from reliable sources shows that the e-commerce is probably included in the following groups in KBLI 2015:
- 47919: Retail Trade through Media for
Various Other Kinds of Goods
This group covers retail trading for various other kinds of goods through orders, and the goods are delivered to the buyer in accordance with orders by catalogue, model, telephone, TV, the internet, mass media, etc. It also includes the activities of Providers of Trade Transactions Through Electronic Systems (PTPMSE) who provide electronic communication facilities used for trade transactions (providers of marketplaces, price grabbers, daily deals, online small ads, etc.).
- 62012: Development of Applications
for Trade through the Internet (E-Commerce)
This group covers the development of applications for trade through the internet (e-commerce). These activities include consultancy, analysis, and programming of applications for trade through the internet.
- 63120: Web Portals
This group covers services providing access to portals of knowledge enterprise centres which are the product of data and information processing and so can be used as materials for decision making. Examples of the facilities provided are email, searching, chatting, access to resources. This group includes the operation of mobile portals, social network management, and intermediary services.
If we look at groups 2 and 3 in KBLI 2015, the definition and explanation of the business sectors covered are a long way from the definition of e-commerce itself. Group 62012 is closer to software application developer, while group 63120 is closer to information websites complete with such features as email, searching, chatting, and so forth which is more like google.com or If we look at groups 2 and 3 in KBLI 2015, the definition and explanation of the business sectors covered are a long way from the definition of e-commerce itself. Group 62012 is closer to software application developer, while group 63120 is closer to information websites complete with such features as email, searching, chatting, and so forth which is more like google.com or yahoo.com as information searching portals. Actually the closest group is group 47919 with the title Retail Trade Through Media for Other Types of Goods.
KBLI 2015 in Relation to Provisions and Limitations on Foreign Investment in Indonesia
As explained above, group 47919, Retail Trade Through Media for Other Types of Goods contains a primary elucidation as retail trade, which under Perpres 39/2014 is reserved for 100% domestic capital, which means it is closed to foreign investment. This provision could hamper the progress of e-commerce in Indonesia because the development of e-commerce activities frequently needs a large investment and so needs foreign investment in the context of the understanding of foreign direct investment.
Furthermore, the elucidation of group 47919 actually groups suppliers of (e-)marketplaces, price grabbers, daily deals, online small ads, etc. as retail trade even though as explained above this type of e-commerce is only a site for placing orders while the actual retailer is another party.
Excerpt from the elucidation of group 47919:
"...electronic communication facilities used for trade transactions (providers of marketplaces, price grabbers, daily deals, online small ads, etc.)."
It can be concluded from the above exposition that KBLI 2015 does not do enough to accommodate e-commerce as a whole. Narrowing the real meaning of e-commerce as KBLI 2015 does obstructs the development of e-commerce in Indonesia by making foreign direct investment difficult. This narrow definition will affect the classification in the DNI and so affect the limits on foreign direct investment.
In the situation described above, if the door to foreign investment is to be re-opened for e-commerce, the ways it could be done at present are:
- to amend KBLI 2015 by classifying e-commerce not only in the retail trade group but also as other types of business containing the business path specific to e-commerce, such as production, payment, (e-)marketplace, or joining together these business paths and so forth; or
- to open the door to foreign investment by amending the DNI to open it up for foreign retailers by permitting them to invest in retail trade businesses.
Of these two possibilities, the safest and most popular path would be to take the first option, which would need a revision of KBLI 2015 to harmonise it with the DNI in order to open up e-commerce to foreign direct investment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.