Minister of Investment Bahlil Lahadalia has raised concerns about the potential negative impact of increased taxes on certain entertainment businesses on foreign investment in Indonesia.
The specific entertainment businesses affected include bars, nightclubs, discotheques, karaoke venues, and spas.
The entertainment tax for these businesses has been raised to at least 40 percent starting from early 2024, following the implementation of Law No. 1/ 2022 concerning Financial Relations between the Central Government and Regional Administrations. Previously, the national average entertainment tax was 10 percent.
“But, the policy has just been implemented, and I haven’t seen its real impact yet. However, my feeling tells me that it will have an inappropriate impact on foreign investment in the country,” said Bahlil on Wednesday, January 24, 2024.
Bahlil said further that the increase in entertainment tax would raise operational costs for these five types of entertainment businesses. Ultimately, the increased operational costs would be passed on to the rates charged to customers.
As a result, Bahlil predicts that the increase in entertainment tax will erode the consumer base for these specific entertainment services. However, Bahlil emphasized that the Coordinating Minister for Maritime Affairs and Investment has instructed for temporary postponement of the implementation of Law No. 1/2022.
“The implementation of the increase in specific entertainment taxes still needs further study. But I can understand what the Ministry of Finance is saying in terms of achieving tax revenue targets,” he said.
Previously, Minister of Tourism and Creative Economy Sandiaga Uno emphasized that there would be no change to the amount of entertainment taxes for bars, nightclubs, discotheques, karaoke venues, and spas at 40-50 percent.
However, local governments can provide tax relief according to the Circular Letter of the Minister of Home Affairs No. 900.1.13.1/403/SJ issued on Friday (19/1). According to Sandiaga, this letter gives the green light for local governments to provide incentives to the entertainment industry.
He gave an example, mentioning that local governments could provide fiscal incentives in the form of a 75 percent tax reduction. Thus, entrepreneurs would only need to pay a tax of 10 percent if the entertainment tax rate is 40 percent.
Sandiaga stressed that the granting of tax reduction, exemption, or elimination is the prerogative of local governments. However, he mentioned that local governments would provide fiscal incentives according to the flexibility granted in the circular.
“Because this circular is to address complaints from certain entertainment industry players, there is no change in the amount of entertainment taxes compared to the previous year,” he said.
Director of Regional Taxes and Local Levies at the Ministry of Finance, Lydia Kurniawati Christyana, explained that Law No. 1 of 2022 would reduce general entertainment taxes.
However, the government acknowledges that this policy will increase specific entertainment taxes, namely for bars, nightclubs, discotheques, karaoke venues, and spas.
She stated that only specific entertainment taxes were increased in Law No. 1/2022, while taxes for 11 other types of entertainment and arts were reduced to a maximum of 10 percent.
“This law is a legal product discussed together by the government and the legislature. That means the rules are input from various parties, one of which proposed reasons with a social-religious language,” Lydia said, on January 22, 2024.
