TikTok Shop Faces Regulatory Hurdles in Indonesia

TikTok Shop is part of the social network's efforts to make more money. It lets creators and brands add a Shop button to their videos and live broadcasts, allowing users to buy products within the app easily. Indonesia was one of the first countries where TikTok introduced TikTok Shop, believing in its potential to become a successful retail platform, especially given its large user base.

However, as of Wednesday, October 4, 2023, TikTok announced that they would no longer support buying and selling of goods through TikTok Shop in Indonesia. This decision followed the issuance of Minister of Trade Regulation Number 31 of 2023 regarding Business Licensing, Advertising, Guidance, and Supervision of Business Actors in Trade via Electronic Systems, which was enacted on September 26, 2023.

The purpose of this regulation is to create a level playing field in the business environment. Without such rules, market monopolies could harm small and medium-sized enterprises, particularly those not yet integrated into the digital system.

Indonesia boasts 125 million TikTok users, and its e-commerce market is rapidly expanding. Transactions in the country were valued at approximately $52 billion last year, with around $2.5 billion occurring on TikTok, as reported by Momentum Works, a consulting firm based in Singapore. This market share on TikTok is significantly larger than other social media platforms.

The trade regulation defines social commerce as a feature within social media that facilitates the sale of goods and services. To ensure fair competition, organizers of Perdagangan Melalui Sistem Elektronik (PMSE), including social commerce, are obliged to maintain a clear separation between electronic systems used within and outside the PMSE system. PMSE organizers are also prohibited from controlling data.

TikTok itself remains accessible in Indonesia. However, the Trade Ministry's new regulations have discontinued the ability for users to engage in buying and selling activities through TikTok or other social media platforms. These rules are designed to safeguard local merchants, prevent algorithms from dominating the market, and stop the unauthorized use of personal data for business purposes, as outlined by the ministry.