January 17, 2024
JAKARTA – Industry players are pressing for legal action against a recent hike to the entertainment tax, arguing that it will hinder their businesses and allow illegal activities to thrive.
The Indonesian Tourism Industry Board (GIPI) is planning to petition the Constitutional Court for a judicial review of the tax hike as regards Article 58, Paragraph 2 of Law No. 1/2022, which stipulates a rate of between 40 and 75 percent for specific goods and services tax (PBJT) on entertainment services, starting at the beginning of this year.
GIPI chairman Hariyadi Sukamdani said the tax hike would hamper the business activities of discos, karaoke bars, nightclubs and spas.
“We deem the tax rate for entertainment services problematic and request [its] revocation by the Constitutional Court,” he said, as quoted by Kontan on Sunday.
Hariyadi, who also chairs the Indonesian Hotel and Restaurant Association (PHRI), added that the new tax rate would eventually hinder the businesses’ operations and force them to close, leaving a void for illegal businesses to fill.
“Do we want to shut down the [legitimate] entertainment industry or allow an illegal industry to thrive? If business owners cannot afford to pay the tax, they will eventually look for clandestine options. That’s not right,” he said.
Hariyadi added that an entertainment tax rate of around 10 percent would be ideal.
I Gusti Ngurah Rai Suryawijaya, chair of the PHRI Badung branch in Bali, said spa owners had never been involved in discussions on the entertainment taxes, CNBC Indonesia reported on Monday.
Indonesia imposes a higher entertainment tax than its neighbors.
Malaysia applies an entertainment tax of 25 percent, but Kuala Lumpur imposes a reduced rate of 10 percent for international performances, a decision that sparked debate among local artists in Malaysia, according to an October 2023 report by The Star newspaper.
Meanwhile, Thailand reportedly lowered its entertainment tax from 10 to 5 percent early this year in a bid to attract more tourists to the second-largest economy in Southeast Asia, where tourism is a major contributor. The country met its 2023 target of 28 million tourists to generate 1.2 trillion baht (U$34.2 billion), Singapore’s The Business Times reported, citing government data.
On Monday, Tourism and Creative Economy Minister Sandiaga Uno told reporters it would be better for everyone to wait for the judicial review and to avoid making a fuss, which could reflect negatively on Indonesian tourism.
“I’m worried that if we continue to escalate this [entertainment tax issue], tourists might perceive the situation in Indonesia as inconducive. It’s important [to keep calm], because we’re in the spotlight after [our tourism] managed to recover,” he said.
“I want to ensure that the narrative about [Indonesian] tourism remains positive.”
Sandiaga added that there must be equilibrium between the government and industry stakeholders, so no one was disadvantaged. He also suggested that the government could offer incentives to 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, which could be offset through incentives or regulations that won’t burden [businesses] financially,” he said.