January 19, 2024
JAKARTA – The government has decided to postpone increasing the entertainment tax rate, which was slated to take effect this January, Coordinating Maritime Affairs and Investment Minister Luhut Binsar Panjaitan said on his Instagram account on Wednesday.
He said the government had met with several stakeholders, including the Bali governor, and it had decided to evaluate the policy for the time being.
“We will collectively assess what the impact [of the increased entertainment tax] would be, especially for small business owners,’ Luhut said.
Luhut said the tax hike would affect many, extending beyond the entertainment businesses itself, such as small and medium enterprises (SMEs).
Therefore, Luhut said, he saw no reason to hike the tax on the entertainment industry.
The hike originated from Article 58 in the 2022 law on fiscal relations between the central government and regions (HKPD), which stipulates a rate of between 40 and 75 percent for the specific goods and services tax (PBJT) on entertainment services, such as karaoke spaces, night clubs, bars and spas.
The previous regulation in 2009 only stipulated a 75 percent rate cap for these businesses but with no minimum lower bound
The Indonesian Tourism Industry Board (GIPI) had sought to petition the Constitutional Court for a judicial review of the tax hike, saying it would hamper business activities in the industry.
“We deem the tax rate for entertainment services problematic and request [its] revocation by the Constitutional Court,” GIPI chairman Hariyadi Sukamdani said, as quoted by Kontan on Sunday.
Bali tourism stakeholders claimed on Monday that the policy posed a new threat to the resort island’s tourism, fearing that many foreign tourists would shift their vacations to other tourist destinations around the world with more reasonable prices.
IGN Rai Suryawijaya, chairman of the Badung Branch of the Indonesia Hotel and Restaurant Association (PHRI Badung), told reporters on Monday that the tax should not be imposed, saying “The tax will kill us”.
Tourism and Creative Economy Minister Sandiaga Uno told reporters on Monday that it would be best if everyone waited for the judicial review and avoided making a fuss, which could harm Indonesian tourism.
“I’m worried that if we continue to escalate this [entertainment tax issue], tourists might perceive the situation in Indonesia as not stable. It’s important [to keep calm], because we’re in the spotlight after [our tourism] managed to recover,” he said.
Sandiaga also stated that there must be an equilibrium between government and industry stakeholders to ensure that no one is disadvantaged. He also suggested that the government provide incentives to help offset some business expenses.
“We need to address and analyze the service costs of the entertainment industry. Entertainment services typically entail [high] costs, including expenses for security and licensing,” Sandiaga said.
The Finance Ministry defended the tax hike on Wednesday, saying the government reasoned only certain people were consumers of karaoke, night clubs, bars and spas, which implied they had enough purchasing power to afford those services, as quoted from Kompas.
The ministry also argued it wanted to prevent regional heads from resorting to a race to the bottom in placing as low rates as possible for the entertainment tax to compete with other regions.