TikTok has suspended its Shop feature in Indonesia, the app’s second-largest market. The development comes just days after the Indonesian government gave social media platforms a week’s ultimatum to stop online transactions or face a ban.

The government’s decision is aimed at curbing direct sales through apps like TikTok, Facebook, and Instagram, which it believes have hurt the country’s brick-and-mortar businesses. “Now, e-commerce cannot become social media. It is separated,” Zulkifli Hasan, Indonesia’s minister of trade, said in a press conference on September 27. “Social media platforms can only facilitate [the] promotion of goods and services. They should not provide payment transactions on their platform. So there can’t be any direct sales on social media.”

The government hopes this move will bring shoppers back to physical shops that have lost business due to the rising popularity of social commerce. But experts and local shopkeepers told Rest of World the broad policy shift could end up harming thousands of small businesses in the country.

Ruby Devy, who runs a clothing shop in Southeast Asia’s largest textile market, Tanah Abang, said 80% of her customers are online resellers who sell products through live-shopping on TikTok Shop and Shopee Live. “I asked them what they’re going to do [now]. Some of them said they are going to move to an e-commerce platform,” Devy said. “The government must give the sellers another solution. Either sales through direct message or something.”

Around 64% of medium- and small-sized businesses in Indonesia sell directly through social media, according to Nailul Huda, public policy researcher at the Institute for Development of Economics and Finance (INDEF). Only 25% of small sellers use e-commerce websites.

“Let them do the selling through direct message. Just forbid TikTok Shop or social platform commerce [from acting] like e-commerce [by] giving bonus or other kind of promotion like cashback and free delivery,” Huda told Rest of World. 

There are over 6 million sellers and 7 million affiliate creators on TikTok in Indonesia, according to the company. Many of them have voiced their concerns about the ban on social media, with the hashtag #KamiUMKMdiTikTok or “We are MSME on TikTok.” Koh Cun, a TikTok affiliate creator with 1.4 million followers, posted a video about how selling through TikTok had helped him move from a smaller city, where he had a dwindling offline business, to Jakarta. “My kid could get a better education because of TikTok Shop,” he said in the video.

6 million The number of sellers on TikTok in Indonesia.

Indonesia, the world’s fourth most populous country, has the largest live-shopping market in Southeast Asia, according to a report by market intelligence firm Cube Asia. In 2022, live shopping in Indonesia cumulatively saw sales worth $5 billion, with an estimated 55% of internet users in the country making purchases on social media platforms like Facebook, Instagram, TikTok, WhatsApp, Line, and Zalo, noted the report. Indonesians spent an average of $100 each on social commerce per year.  

“Meta platforms such as Facebook and Instagram have been traditionally the largest host platforms for live video streams, but TikTok has taken up a significant share of this market, especially in Indonesia,” Cube Asia said in the report.

TikTok has around 125 million monthly active users in Indonesia. Within a year of its launch in April 2021, TikTok Shop clocked sales worth $2.5 billion in the country, according to market research firm Momentum Works. TikTok’s livestreaming sales make up around 5% of total e-commerce sales in Indonesia. 

People sell very cheap products [on] TikTok Shop.”

But TikTok Shop is not compliant with Indonesian laws, according to Huda. For instance, the app does not have official permission to run an e-commerce business. Additionally, sales facilitated via TikTok bypass several local tax laws, which is why sellers are able to offer deep discounts and attract more buyers.

“In social commerce, there is no value-added tax, the seller doesn’t have to get business permits, and there’s no certification or certain terms and conditions to sell stuff. This allows the seller to sell the products at a very cheap price,” Huda said. “Not like offline sellers or e-commerce sellers who need a lot of permits and certification to sell their products.”

The owner of a fashion store in Tanah Abang market claimed her sales have been on the decline this year because “people sell very cheap products [on] TikTok Shop.” The seller, who requested anonymity as she did not want to talk publicly about her business, told Rest of World she also sold on TikTok but buyers tended to flock to those who offered cheaper prices. “They use different fabrics and the quality of the goods is different. But I think people don’t care about the quality. They only care about the price,” she said. For instance, a pair of sunglasses on TikTok Shop can cost less than a dollar, while they’re priced well over $10 on e-commerce platforms. 

INDEF has been in talks with the Indonesian government to regulate sellers on platforms like TikTok so that they are encouraged to run their businesses akin to offline sellers — and sell better-quality wares. “Online sellers need to have certification on their imported goods, they need to pay tax, they need to have a tax number,” Huda said.