SINGAPORE/JAKARTA: Indonesia may soon introduce an entertainment tax of 40 to 75 percent on the price of certain goods and services, much to the chagrin of businesses and consumers who say the sharp increase could put customers off visiting affected establishments.
The price of a cocktail sold in a club, for example, will increase from IDR 200,000 (US$12.63) to somewhere between IDR 28 million and IDR 35 million due to the GST in the affected entertainment venues.
According to the Jakarta Post, the new tax increase is based on a 2022 law on fiscal relations between the central government and the regions.
It will apply to entertainment services such as karaoke lounges, nightclubs, bars and spas.
But prominent industry players, including Bali Indonesia Tourism Industry Council (GIPI) chairman Hariyadi Sukamdani, have pushed back, refusing to accept the higher tax rates and taking legal action against the proposed increase.
On January 17, Coordinating Minister for Maritime and Investment Affairs Luhut Binsar Panjaitan said on his Instagram account that the government has decided to postpone the increase in the entertainment tax rate that was supposed to take effect in January.
According to the Jakarta Post, Mr Luhut said the government had decided to evaluate the policy for now.
However, the capital Jakarta has already imposed a 40% entertainment tax.
LEISURE AND WELLNESS SECTORS UNDER THREATEN
In December 2023, Indonesia adjusted the entertainment tax to range between 10 percent and 35 percent. Previously, entertainment taxes had no minimum rate and were subject to a maximum rate of 75 percent, based on a 2009 regulation.
The entertainment tax for each region is determined by the regional governments.
A spokesperson for a Bali-based spa business told CNA that the proposed tax increase would pose a significant threat to Indonesia’s wellness industry.
“(This is) especially in Bali, which is mainly fueled by foreign tourists,” said Sundari Day Spa employee Ms Devi Vanya Koslavita.
She explained that the drastic tax increase, if implemented, could “shift market interest to competing countries” – such as Malaysia, Vietnam, Singapore, Thailand and India – and affect Indonesian tourism in the long term.
She told CNA that Sundari Day Spa is currently evaluating strategies such as cost-cutting measures and efficiency optimization to retain customers in the face of the proposed tax increase.
“Balancing affordability and operating costs is a complex challenge … we will make every effort to minimize the impact on (customers’) overall spa experience,” Ms Devi said.
She also opposed including the spa industry in the tax increase.
“The spa industry is inherently about wellness and fitness activities, serving as a primary avenue for physical, mental and spiritual healing.
“Defining it as entertainment, similar to nightclubs and discotheques, is inappropriate and contrary to its main purpose,” she said.
Sundari Day Spa is part of the Bali Spa Bersatu (BSB) community, one of the groups that initiated a judicial review of the policy at Indonesia’s Constitutional Court.
Meanwhile, Ms. Claudida Riesman, a 34-year-old digital marketing specialist based in Jakarta, told CNA that she may no longer choose to celebrate work events in karaoke parlors if the tax increase is implemented.
Ms Claudida said she used the office’s entertainment budget to pay for karaoke sessions at the end of business trips.
“Instead, we might go to a restaurant and order a big dinner,” she said, adding that the office would be reluctant to increase the entertainment budget.
For an upcoming 2-hour karaoke session for a total of 16 people in Bandung, West Java, Ms. Cloudida has a budget of IDR 2 million, not including snacks that they can order during the session.
She also said that she will no longer go to karaoke parlors as much in her spare time.
“I go probably once a year with my family,” she said.
She added that she hoped the new increase in entertainment tax would not be implemented as “(Indonesia’s economy) has not fully recovered from the pandemic”.
“I’m afraid this could affect other prices to go up as well,” she said.
Two karaoke venues – one in Bandung and one in Jakarta – told CNA that they have not yet increased their prices.
