Analysis: Indonesia considers collecting tourist tax on airline tickets – Academia

The Indonesian government is in the process of passing a regulation to establish the Indonesia Tourism Fund (ITF). The fund will be used to support several major tourism events that can create multiplier effects, such as music concerts. One of the methods being considered to raise money for the fund is through airline tickets by charging a tourist tax, which is likely to increase airline ticket prices. The plan sparked objections from business players in Indonesia’s tourism sector, including the country’s aviation industry, and from consumer rights advocates.

The Ministry of Tourism and Creative Economy has established a presidential regulation as the legal basis for the Indonesia Tourism Fund (ITF). Anggara Hayun Anujuprana, director of financing at the Ministry of Tourism and Creative Economy, explained that a tourist tax, added to the cost of entry visas for foreigners, could be one of the ITF’s potential sources of funding. Other possible financing options for the ITF include the state budget, regional government budgets, investment returns and subsidies collected by the Indonesian Environment Fund (BPDLH).

A letter from the Ministry of Maritime Affairs and Investment, dated April 20, 2024, revealed a plan to collect tourist tax on airline tickets as a source of funding for the ITF. The letter invited the Indonesian National Air Carriers Association (INACA) to a meeting on April 24, 2024 to discuss the plan, but has now been rescheduled for an as yet unknown date. Alvin Lie, member of INACA’s Expert Council, said INACA was not aware of any plans for such a tourist tax and that there were no discussions on the matter before receiving the invitation to the meeting.

Indonesian Hotels and Restaurants Association (PHRI) Secretary-General Maulana Yusran warned that the rule would negatively impact tourism businesses, which are still struggling to recover from the impact of the COVID-19 pandemic. INACA Chairman Denon Praawiratmadja added that the proposed fee could risk deteriorating airlines’ operations while they are still recovering from the pandemic and grappling with the depreciation of the rupiah against the US dollar, with 70 percent of the aviation sector’s operating costs are linked to the latter.

Lie, who is also chairman of the Association of Indonesian Aviation Service Users (APJAPI), questioned the benefits of the compensation for passengers, citing the International Air Transport Association (IATA) rule that bans additional charges on airline tickets that do not provide benefits for passengers in addition to the service costs. , travel insurance and value added tax (VAT). The Indonesian Consumer Organization (YLKI) has called on the government to reconsider the proposed rule as it could conflict with the ITF’s own goal of improving tourism to Indonesia.

The ITF will manage Rp2 trillion (US$123.65 million) in funds in the initial phase, and it is planned to be a source of financing for the organization of Indonesia’s major tourism events. The fund is intended to be managed like the Ministry of Finance’s Indonesia Endowment Funds for Education (LPDP), also involving all stakeholders from the country’s tourism sector. Responding to reports of plans to impose a tourist tax on airline tickets to fund the ITF, Minister of Tourism and Creative Economy Sandiaga Uno claimed that the additional costs would not burden the public.

It is unlikely that the tourist tax can effectively serve the objectives of the ITF. Introducing the fee without adjusting the cap on Indonesian airline tickets would have a direct impact on the airline industry’s profit margin. But even if the levy is introduced alongside adjustments to the airline ticket price cap, it could still indirectly reduce airline profitability by reducing demand. In both cases, domestic tourism would suffer.

What we heard

An industry player said the government, through the coordinating Ministry of Maritime Affairs and Investment, has been trying to raise funds for tourism development. The recent policy of imposing a tourist tax on the purchase of airline tickets is part of these fundraising efforts.

The source said the idea of imposing a tourist tax will be implemented quietly before the public backlash starts to pile up. However, they believe that the program is likely to continue regardless of the public’s reaction because Minister Luhut took the initiative. “Unless there is significant opposition from the public and the airline industry,” the source said, about what it would take to revoke the tourism tax policy.

Meanwhile, the source also mentioned the different approaches taken by the government to attract tourists. For example, they are trying to get Indonesia to organize more concerts with international artists. The government also focuses on tourists with a higher spending potential. “This also includes those (tourists) who prioritize sustainability aspects,” the source added.

“It is expected that international banking networks will help introduce domestic tourism destinations,” the source said. Top tourist destinations for the government include Lake Toba and Komodo Island.

Disclaimer

This content is provided by Tenggara Strategics in partnership with The Jakarta Post to provide the latest comprehensive and reliable analysis of Indonesia’s political and business landscape. Visit the latest edition of Tenggara Backgrounder to read the articles below:

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