SINGAPORE/JAKARTA: A 40 per cent to 75 per cent entertainment tax on the price of certain goods and services may soon be implemented in Indonesia, much to the displeasure of businesses and consumers, who say that the steep increase could push customers away from visiting affected establishments.
The price of a cocktail sold at a club, for example, would see an increase from IDR 200,000 (US$ 12.63) to anywhere between IDR 280,000 and IDR 350,000 due to the tax on goods and services at affected entertainment locations.
According to the Jakarta Post, the new tax hike is based on a 2022 law on fiscal relations between the central government and regions.
It will apply to entertainment services such as karaoke lounges, nightclubs, bars and spas.
But prominent industry players, including Bali’s Indonesian Tourism Industry Board (GIPI) chairman Hariyadi Sukamdani, have pushed back, refusing to accept the higher tax rates and taking legal action against the proposed increase.
On Jan 17, Coordinating Minister for Maritime and Investment Affairs, Luhut Binsar Pandjaitan said on his Instagram account that the government has decided to postpone increasing the entertainment tax rate, which was slated to take effect this January.
According to the Jakarta Post, Mr Luhut said that the government has decided to evaluate the policy for the time being.
Despite this, the capital city of Jakarta has already imposed a 40 per cent entertainment tax.
LEISURE AND WELLNESS SECTORS UNDER THREAT
In December 2023, Indonesia adjusted the entertainment tax to range between 10 per cent to 35 per cent. Before that, entertainment taxes had no minimum rate and were subject to a maximum rate of 75 per cent, based on a 2009 regulation.
The entertainment tax of each region is determined by the regional governments.
A spokesperson of a spa business based in Bali told CNA that the proposed tax increase would pose a substantial threat to the wellness industry in Indonesia.
“(This is) especially in Bali, which is primarily fuelled by foreign tourists,” said Sundari Day Spa employee Ms Devi Vania Coslavita.
She explained that the drastic tax hike, if implemented, could “divert market interest to competitor countries” – such as Malaysia, Vietnam, Singapore, Thailand, and India – and affect Indonesian tourism in the long run.
She told CNA that Sundari Day Spa is currently evaluating strategies such as cost-cutting measures and optimising efficiency in order to retain customers in the face of the proposed tax increase.
“Balancing affordability and operational costs is a complex challenge … we will make every effort to minimise the impact on (the customers’) overall spa experience,” said Ms Devi.
She also took issue with the spa industry being included in the tax hike.
“The spa industry is inherently aligned with wellness and fitness activities, serving as a primary avenue for physical, mental, and spiritual healing.
“Labelling it as entertainment, akin to nightclubs and discos, is inappropriate and contradicts its fundamental 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 Cloudida Risman, a 34-year-old digital marketing specialist based in Jakarta, told CNA that she may no longer choose to celebrate work events at karaoke lounges if the tax increase is implemented.
Ms Cloudida said that she uses the office budget for leisure activities to pay for the karaoke sessions at the end of business trips.
“We might go to a restaurant and order a big dinner instead,” she said, adding that the office will be reluctant to increase the entertainment budget.
For an upcoming two-hour karaoke session for a total of 16 people in Bandung, West Java, Ms Cloudida has a budget of IDR 2 million, not inclusive of snacks that they may order during the session.
She also said that she would not go to karaoke lounges as much in her free time anymore.
“I will go, probably, once a year with my family,” she said.
She added that she hoped the new entertainment tax hike would not be implemented as “(Indonesia’s economy) has not fully recovered from the pandemic”.
“I fear it might influence other prices to go up as well,” she said.
Two karaoke places – one in Bandung and one in Jakarta – told CNA that they have not increased their prices yet.