New e-commerce rules may choke online growth, caution Indonesian executives

Indonesian e-commerce industry executives have criticised new regulations requiring online vendors to obtain government permits, saying the mandatory procedures would sharply increase costs and stifle the country's booming e-commerce market.

Under a new law introduced last week, all online storefronts, currently estimated at over 10 million, need to seek a permit from authorities in order to sell their goods.

The law also requires online marketplaces to store information in local data centers and for domain names to reflect Indonesia.

Trade minister Agus Suparmanto told reporters on Monday that the regulation is intended to protect consumers and businesses, and promised that "everything will be made easier", as the procedures to comply with the law can be done online and will be free.

But e-commerce platforms and online vendors warned that the regulation will discourage small businesses from expanding online, as many entrepreneurs fear the permits could be used to tax the industry.

"This will destroy the industry... We are already seeing vendors leave our platform," said an executive at a local e-commerce company, declining to be named due to the sensitivity of the subject.

The new regulation comes as Indonesia's internet economy is growing at a break-neck speed, buoyed by rising smartphone use. It is expected to triple to $133 billion by 2025, according to a recent report by Google, Singapore state investor Temasek Holdings and global business consultants Bain & Co.

Tokopedia, Indonesia's biggest e-commerce player and backed by SoftBank Group Corp <9984.T> and Alibaba , said that the policy "will hamper the growth of small and medium enterprises", as many vendors will hesitate to start businesses online.

"With this requirement, only the big players...can easily sell their products through online platforms," it said in a statement.

Rival e-commerce site Bukalapak said that the business permit would create an entry barrier for small sellers, and more than five million sellers and over 2.5 million agents doing business with the firm would be impacted by the regulation.

The regulation could also lead small sellers to shift to social media sites such as Facebook which are not mentioned by the new regulations, two industry executives said.

Endy, who sells anime action figures online, said he is already considering the switch.

"If it is mandatory, I may have to decide whether to do it or not. I've already prepared alternatives like selling via Instagram."