MSME Regulations in E-Commerce 2026: Government Asked to Be Careful in Regulating Marketplaces

The Indonesian government is currently reviewing regulations regarding Micro, Small and Medium Enterprises (MSMEs) that sell on e-commerce platforms. This step was taken to protect local business actors from increasingly fierce competition, especially due to the entry of cheap imported products and the dynamics of digital platform algorithms.

However, observers warn that regulations that are not designed carefully can actually have the opposite impact. Policies that were originally intended to protect MSMEs have the potential to backfire if they do not take into account the characteristics of the digital economy.

Government Reviews E-Commerce Regulations

The government and the DPR are currently discussing possible changes to regulations related to digital trade. This evaluation emerged after many MSME players complained about competition from imported products sold at very cheap prices on e-commerce platforms.

One of the regulations that is the basis for monitoring digital trade is Ministry of Trade Regulation (Permendag) Number 31 of 2023, which regulates business licensing, advertising, and supervision of trade through electronic systems. However, in practice, these regulations are still being evaluated so that they are better able to protect local business actors in the digital market.

Risks of Price Intervention in the Digital Economy

Experts assess that one of the mistakes that often occurs in formulating regulations is direct price intervention, for example by setting limits on administrative costs or e-commerce platform commissions.

The problem is, the digital ecosystem has a different character from conventional markets. The e-commerce platform is a two-sided market, namely a system that connects two parties at once: sellers and buyers. If the government reduces costs on one side, the platform can adjust costs on the other side.

For example, if administrative costs for MSMEs are forcibly reduced through regulations, platforms can compensate in other ways such as:

• Reducing shipping cost subsidies

• Increase service fees for buyers

• Increase product promotion or advertising costs

As a result, even though administrative costs appear to be lower, the total costs that must be borne by businesses or consumers can remain high.

Potential Decline in MSME Transactions

If regulations cause increased costs on the consumer side, demand for the product may also decrease. This can ultimately reduce the volume of transactions on digital platforms.

This means that protection intended to increase MSME profit margins actually has the potential to reduce their sales. This condition can be increasingly felt when people's purchasing power is weakening.

Risk of "Waterbed Effect" in Regulation

In the digital economy, the waterbed effect phenomenon is also known, namely when one cost is reduced through regulation, other costs actually increase to balance the system.

For example, if commission fees are limited by the government, platforms can increase other fees such as:

• Product search advertising costs

• Premium membership fees

• Cost of participation in promotional campaigns

As a result, the actual cost burden borne by MSMEs is not actually reduced, but only changes form.

Regulation Should Not Hinder Innovation

Observers also warn that regulations that are too strict could create barriers to entry for new business actors. High compliance costs can make it difficult for small MSMEs to utilize digital platforms to grow their business.

Therefore, regulations should not only focus on setting prices or tariffs, but also pay attention to other aspects such as:

• Platform algorithm transparency

• Fairness in partnership contracts

• Protection against unfair competitive practices

This approach is considered more effective in creating a healthy digital ecosystem without hampering innovation and economic growth.

Conclusion 

MSME regulations in e-commerce are necessary to protect local business actors from unfair competition. However, these policies must be designed carefully so as not to have a negative impact on the digital ecosystem.

Ideal regulations are policies that are able to maintain a balance between protecting MSMEs, technological innovation and digital economic growth. With the right approach, MSMEs can develop in the digital market without hampering the dynamics of the e-commerce industry in Indonesia.