Freddy Karyadi joins us in this episode to discuss crypto and digital assets in Indonesia.
We evaluated the elements and development of regulations pertaining to Crypto Asset trading in Indonesia, the strong retail market for crypto investments, bitcoin whitelists, and taxation of crypto trading.
Stephen Lai – Welcome to The Heart of the Matter, a podcast that covers legal developments from around the world. I’m your host Stephen Lai and this podcast is brought to your by Conventus Law.
Joining me in this episode is Freddy Karyadi, a partner with Indonesia-based law firm ABNR.
Freddy has over two decades of experience in Indonesia and has been heavily involved in numerous complex crossborder deals including TMT, tax, restructuring distress assets, M&A investment, employment and dispute settlements, and bankruptcy. Freddy was one of the pioneers who focused on the digital industry and is head of the fintech practice team in ABNR. Freddy has handled many transactions involving technology and fintech, health-tech, edu-tech, media and telecommunications companies from early stage fundraising, integration, incorporation, expansion, exit, public offering preparation to regulatory compliance issues. He has also represented independent power producers such as IPP giant ECAs and commercial banks for various electricity sector financing. Freddy’s clients vary from multinational to startups which span across a wide range of industries including natural resources, energy, financial institutions, healthcare, private equity funds, venture capital and property.
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SL – Welcome to the show Freddy.
Freddy Karyadi – Thank you, Steven.
SL – Great to have you here. In today’s episode, we are going to be talking about everything crypto, fintech blockchain in Indonesia. And it’s great to have you on. So Freddy, crypto is very popular in Indonesia. When we were doing the research, according to the Indonesia Blockchain Association, as of July last year, there were 7.4 million people that own cryptos in Indonesia and that was an increase of 85% from 2020. Now we’re in 2022, obviously, so I would imagine that number has probably gone up as well. But the interesting thing is this number is significantly higher than the number of stock investors on crypto in Indonesia with only 2.7 million investors. And this is all based on the Indonesia Stock Exchange. So why is it so popular on the retail and less popular, I guess for the stock investors?
FY – Yes that’s really the quite surprising phenomena in Indonesia. But the thing, there are few backgrounds or thereare few as a rationale of that phenomenon, I think number one is because during the pandemic people, most of the investors, a lot of retailers doing the investment in their home. So they look to see and explore the opportunity online, and of course, stock exchange is also one of the options.
But the crypto would give them more appetite because first is something new and this is the new lifestyle, the new trend. Second is the trend in the words still affecting their animoia, so their appetite and of course the increase of the worldwide price at the time really significantly compared to the stock exchange where the company or most of the companies, they are still struggling. So I think the crypto is one of the breakthrough investment alternative. So that’s why the number of income headcounts like you mentioned earlier that increased significantly. I think that’s the main point
SL – Are these inherent dangers today? I know it’s crypto now, but we’ve seen this thing before, right, where you get lots of retail investors buying these stocks because it’s very attractive, obviously the growth rate went astronomical over the last two years. I know we had a bit we had a big come down in the last couple of weeks, but overall the growth has been astronomical.
But does that create a bubble, do you think? Especially with the retail investors who maybe don’t have all the access to all the information that they may need to make these sound investments?
FY – I think the information they can have multiple sources because in various fintech apps there are a lot of fintech apps in Indonesia that’s also giving them an alternative option or access to see the markup of crypto. So they can learn from that, meaning that in Indonesia that focus in investment, including investment in crypto really have significant growth nowadays. So I think people just turn on their mobile and click the apps and that’s all they can see the updates, they can get some advice or some input from maybe the group or some other experts.
SL- Yeah, things are certainly changing and I wish all those millions of people with crypto all the best.
FY – Yes.
SL – One thing I don’t want to see is this bubble busting. So hopefully everything will be successful for everybody.
Moving on to Regulations it’s funny. I’m based in Hong Kong, as the listeners will know, and we speak a lot of crypto and digital assets over here, but there’s always a gray area and regulations. No one’s quite sure who’s got this sort of definitive handle on this. So I want to move on to regulations with you, Freddy. What are the essential components and the development of regulations regarding digital assets trading in the markets in Indonesia?
FY – Last year there was deregulation because it is deficient of the earlier portion. So basically there are two main points.
First, one is to clarify in more details the procedures to obtain certain license and approval. So they put in more details and stricter way to get the license to be the player in the crypto arena.
Second is they explain in more detail as well the rights, obligation, duties, reporting, including of the players and the players currently they govern the crypto trader crypto exchange and e-wallet for crypto.
So still people need to also see in the regulation on how to be the issuer and offshore product subject to Indonesian regulation because in this era that cross border crypto product is already very common.
SL – So it would be fair to say there’s a fair degree of clarity, and certainty when it comes to crypto regulations in Indonesia.
FY – Yes. We still have some homework.
SL – Certainly sounds like that, doesn’t it? Staying on the regulator. Would it be fair to say the main agencies looking after this is the Commodity Futures Trading regulatory Agency? Is that the right agency? Am I on the right agency here?
FY – Yes, I think yes, that’s correct. Bappebti, Commodity Futures Trading regulatory Agency. So that’s the right agency. Right. But still a thing like mentioned earlier on MFT still not clear on who will take care of.
SL – Yeah, it looks like it’s similar for a lot of the rest of the world, isn’t it? Similar situation for other regulators. Thing on regulations and in particular in the area of Bitcoin and crypto exchanges when they’re traded on crypto exchanges.
I think another area which I found quite interesting was that so Bitcoin is legal in Indonesia as a commodity, whereas I think other jurisdictions have banned it right?
But there are some intricacies right? As I say, the Commodity Features Trading regulatory agency has a whitelist, so you have to be in a whitelist to be able to trade on the exchange if you’re a Bitcoin. Am I right there?
FY – Correct Yes. They put certain figures on who can be in the list.
SL- How do they decide though? I mean, obviously I don’t know the ins and outs of how everything works with the bitcoins, but how does the agency get to decide what makes a white list and what doesn’t?
FY – There are two components here. So number one is they will take a look the rating of the 500 square market cap CNC. So that’s number one as the main difference.
Number two is they also see or apply the approach on how the coin itself having sufficient securityaspect team profile, the development mechanism, the team of the members, good governance, scalable the roadmap. I think that’s something that also one of the elements that to be listed in the whitelist. So I think that’s the main idea.
The regulation giving some idea on how to be the how to be the whitelist actually.
SL – I understand currently there’s 229 crypto assets on the exchanges. So I guess it’s plenty to choose from the retail investors, right?
FY – Yeah.
SL – Am I right saying that they’re now looking at taxing crypto trading? Wasn’t it taxed before or why are they looking at this now?
FY – Yeah, actually based on the law. Based on the tax law, actually the trading of crypto already subject to tax, meaning that income tax for any profit, any increase of economic capability that’s automatically subject to tax.
And second is any deliver of taxable goods, including the commodity of the subject to VAT, unless explicitly examined by the law.
So that as the background. First, before we talk on the particular regulation for the tax on crypto.
Now the regulation on tax on crypto already issued last month. Actually, this one is to make it simpler calculation and to make sure the clarity who shall be responsible to with help collect and report. So that’s more important things.
On the rate, that’s already clarified on the VAT and the income tax. Income Tax is 0.1% for the exchange license in Indonesia and 0.2% for non licensed exchange. So that’s the rate for interaction and for the is 1% of the value of the times the VAT rate of 11%.
So this is the regulation to make it clear the exchange in Indonesia that’s the crypto trader who act as the exchange currently she’ll be responsible to collect the income tax from the seller and to make sure the buyer also pay a bit more on the price of the crypto because of the portion of VAT. So that’s the most important thing.
I think on the rate because they put very small to simplify the process and to not give unnecessary burden for this industry yet, because it is still new and because this is final.
So regardless, you make loss or you have profit when you sell, you have to still pay the income tax basically because this is simple rate and simple collection system.
SL – Is this live now or is there a timeline for this?
FY – Currently already applicable
SL – In terms of regulatory developments, how do you see the future shaping up?
Are we going to see more clear defined regulatory standards for crypto trading for example? How do you see the future going for regulatory issues in cryptos in your jurisdiction?
FY – Yeah, I think the first and foremost number one is about the clarity on to be issuer and whether the local coin how they can also be part of the whitelist list to be part of the whitelist because I think the local player also would like to participate.
And second, also on the collaboration, because I think this is cross border the collaboration, meaning that on how the exchange because now we have not yet have an exchange formal exchange.
The role of exchange run by the crypto trader regulation already set out four players, exchange, crypto trader, custody and wallet. But actually the exchange itself has not been established yet still in the process.
So the collaboration or the mechanism between the
custodian and exchange Indonesian and offshore, of course, and the issuer in Indonesia and offshore. So I think that we need to see that one because I think this is a cross border, not just offshore, but the interaction should be prioritized.
SL – Yeah, it sounds right, doesn’t it? I guess if anything, the exchanges need to be regulated at some point, right?
FY – Yeah.
SL – Excellent.
And with that, Freddy, thank you very much for joining me on this episode. It’s great having you on and sharing your thoughts with us.
FY – You’re welcome, Stephen. I’m happy to share in this event
SL – And I look forward to speaking to you very soon on more crypto in Indonesia very soon. So hopefully we get to do this again.
FY – Sure. Happy to do so.
SL – And thank you, listeners. For listening.
And I look forward to talking to you on our next episode.