TikTok Shop officially banned in Indonesia by the Ministry of Trade: How does this change online commerce and the digital space?

Author: Ektada Bilhadi Muhammad

Over the past couple of weeks, outcries from small business owners and merchants from Jakarta’s iconic textile marketplace, Pasar Tanah Abang, have made the rounds all over social media. Alongside videos capturing the deserted state of the once bustling shopping center, many merchants have pleaded to the government to close down TikTok’s social commerce section, TikTok Shop, which they have pointed as one of the primary reasons conventional merchants are struggling during this time. This has sparked its own debate regarding the impact social commerce has on conventional marketplaces and the plight of merchants who do not do their business through social media.

As of the fourth of October, it seems that the wishes of said merchants have come true, as the government, through the Ministry of Trade Decree No. 31/2023, has officially issued a ruling that bans all forms of social commerce operating in Indonesia, including the aforementioned TikTok Shop. Though the complaints from the aforementioned Tanah Abang merchants were not the driving force behind this new government ruling, according to the incumbent Minister of Trade, Zulkifli Hasan, indeed one of the reasons behind the prohibition of social commerce was the predatory pricing often seen in TikTok Shop that was deemed uncompetitive to small conventional businesses.

Why Ban Social Commerce?

TikTok’s e-commerce section, TikTok Shop, a combination of the application’s usual social media platform and the online marketplace offered by dedicated e-commerce platforms such as Tokopedia or Shopee. (Photo: TikTok Shop official website)

Here it is perhaps important to understand what social commerce actually is and how it differs from other modes of e-commerce. Social commerce is a combination of social media and e-commerce, where users can consume content and purchase products through the same platform. For example, in TikTok, alongside the normal content of basic short videos, one could also find videos and live-streams of people selling products which are able to be bought directly on the app. This is in contrast to a platform like Instagram, where there are also promoted products featured on user’s timelines, but to purchase said product a user would be redirected to a third-party affiliate, such as Tokopedia, Shopee or another e-commerce platform to actually process the payment. This is important as those platforms are officially registered under the government as platforms dedicated to e-commerce, unlike TikTok which is only registered as a social media platform and as such, is not subject to the same tax obligations as official e-commerce applications. This means that merchants that sell their products on TikTok Shop or other social commerce applications also do not need to pay the same taxes that they would if they used official e-commerce platforms, thus allowing them to sell products at a much lower price.

The uncompetitive pricing that social commerce allows is not the only reason that the government has decided to ban the combination of social media and e-commerce under the same platform, as they have also cited concerns regarding privacy. As mentioned previously, TikTok is also a social media application, like Facebook, Twitter, or Instagram, which means that the user’s personal data and interests can be accessed by said platforms, which they often use to cater the content shown on the user’s timeline to fit their personal interests. This becomes rather problematic when the platform promotes products that are near tailor-made for the consumer and can be bought directly from said platform. 

The Indonesian branch of TikTok has obliged to the government’s demands, accepting the terms of the regulations and closing down the TikTok Shop section of the app to Indonesian users. It remains to be seen if TikTok will officially register as an e-commerce platform and obtain a permit to become a sanctioned online marketplace in Indonesia.

Regulating the Digital Space

Though perhaps this ruling may not be expected to fully end the plight of conventional small-scale enterprises that continue to struggle in the era of online commerce, it is promising that the government shows some commitment to addressing important problems that arise in the digital space. However, the rapid development and adoption of the internet by society has clearly left little time for the Indonesian legal system to catch up to the seemingly uncountable set of problems introduced by it, as there is still much work to do on addressing and regulating more problematic online spaces. For instance, some prominent aspects of the digital world whose problems the government has perhaps not fully handled lie in the field of online gambling and online loan sharks. Though there have been regulations addressing those issues, with the former being banned outright and the latter being addressed by the existence of the OJK or Otoritas Jasa Keuangan (Financial Services Authority) that regulates lending services, the fact remains that they are still quite prominent in the online space.

In the case of online gambling, despite it being explicitly prohibited in Act No. 11 of 2008 on Information and Electronic Transaction, many gambling websites are still easily accessible on the internet, even without the usage of VPNs that are often used to access sites blocked by the Ministry of Communications and Informatics. Similarly, illegal online loan sharks are still incredibly widespread despite heavy regulation from the government to vet online lending services. The ease of acquiring a loan from these online loan sharks compared to asking for a loan from a bank or other more established institutions is one of the main reasons as to why many people continue to flock to these illegal lending services. However, this ease of access is perhaps only a marginal benefit compared to the risks one must bear when taking these loans, as said loan sharks will often apply exorbitant interest rates and harass debtors, usually by threatening to share the debtors’ personal information.

As we can see, despite existing regulation to address some of these prominent problems on the online space, legislation alone is not enough to curtail said issues as they continue to persist even after being prohibited by the government. If the government finds these issues truly detrimental to the well-being and welfare of its people, then a greater commitment to follow through on the regulations they have formulated is necessary to ensure their success.