Could the Proposed Entertainment Tax in Indonesia Cap Tourism?

Indonesia is one of the most popular tourist destinations in Southeast Asia, attracting millions of visitors every year with its diverse natural and cultural attractions. However, the country’s tourism industry may face a serious challenge due to a controversial policy that aims to increase the taxes on entertainment services, such as nightclubs, bars, spas, and karaoke lounges.

The facts

Indonesia’s new policy, which was supposed to take effect in January 2024, would raise the entertainment tax from 15% to between 40% and 75%, depending on the type of service and the region.

The policy is based on a 2022 law on fiscal relations between the central government and the regions, which gives the regional governments the authority to determine the tax rates for their respective areas.

The government claims that the policy is intended to boost regional revenues, promote the moral values of the society, and curb the spread of COVID-19.

The arguments

The proposed policy has sparked a strong backlash from the tourism and entertainment sectors, arguing that it is unfair, unreasonable, and detrimental to their businesses and the economy.

The tourism and entertainment sectors have voiced their concerns and objections through various channels, such as petitions, protests, and legal actions. They have also received support from prominent figures, such as the Coordinating Minister for Maritime and Investment Affairs, Luhut Binsar Pandjaitan, and the Bali Governor, Wayan Koster.

Last month, Hariyadi Sukamdani, the chairman of the Indonesian Hotel and Restaurant Association, emphasized in a press conference that the proposed changes could result in job losses within an industry that serves as a vital source of employment, particularly for individuals without higher education qualifications.

Others also argue that there will be an increase in the prices of entertainment services significantly, which would discourage domestic and foreign tourists from visiting and spending in the affected establishments. This would reduce the income and the competitiveness of the tourism and entertainment sectors, which are already struggling due to the pandemic.

The tax hike would hurt the overall tourism industry, especially in the major tourist destinations, such as Bali, Jakarta, and Yogyakarta, where entertainment services are an integral part of the tourist experience. The policy would also damage the image and the reputation of Indonesia as a friendly and hospitable country, argues critics.

In response to the criticism and the pressure, the government has decided to postpone and reevaluate the policy, and to consider the input and the feedback from the stakeholders. The government has also stated that it is open to finding a win-win solution that would balance the interests of the regions, the sectors, and the public.

The entertainment tax policy is a complex and contentious issue that involves various aspects, such as fiscal, economic, social, and cultural. The policy has revealed the challenges and opportunities for the development and regulation of the tourism and entertainment sectors in Indonesia.

The question remains: could the proposed entertainment tax in Indonesia cap tourism, or could it catalyse change and improvement?