President Joko ‘Jokowi’ Widodo has summoned several Cabinet ministers to discuss the significant increase in specific goods and services tax (PBJT) in the entertainment sector, particularly in businesses such as nightclubs, karaoke lounges and spas.
The tax rates have surged between 40 percent and 75 percent. The meeting addressed the government’s plan to release a Circular regarding tax incentives in the entertainment sector.
The tax increase is stipulated in Law Number 1 of 2022 concerning Financial Relations between the Central Government and Regional Governments (HKPD). This regulation has been effective since January 5, 2024.
The tax hikes are outlined in Law No. 1/2022 on Financial Relations between the Central Government and Regional Governments (HKPD). According to the regulation, Specific Goods and Services Tax (PJBT) for specific entertainment services such as discos, karaoke, nightclubs, bars and spas is subject to a tax rate ranging from 40 percent to 75 percent, set by each regional government.
Airlangga Hartarto, Coordinating Minister for the Economy said that the circular letter is a follow-up to Article 101 of the Law no. 1/2022, granting authority to regional governments to determine tax incentives for entertainment businesses, including reductions, exemptions, or eliminations of tax principal, retribution principal, and/or sanctions reduction.
Airlangga also mentioned that the government plans to provide a 10 percent Corporate Income Tax (PPh Badan) incentive for the tourism sector, although the technical details are still under consideration. The circular will also regulate technical aspects of allowing regional governments to set entertainment tax rates below the range specified in the 2022 Law.
Regional governments are permitted not to collect PBJT if the tax potential is considered inadequate. This circular will take the form of a Joint Circular Letter from the Minister of Finance and the Minister of Home Affairs, expected to be promptly issued and disseminated.
Tax protest
Previously, an increase in entertainment taxes of 40-75 percent has sparked criticism from various quarters, including prominent lawyer Hotman Paris, and spa business owners.
In response to the concerns raised, Sandiaga Uno, the Minister of Tourism and Creative Economy, said that his office has received many inputs from the public regarding the issue. He is considering providing incentives to business owners to alleviate their burden.
Additionally, Sandiaga said, unofficial levies often imposed on business owners should be eliminated to ensure business continuity and prevent potential layoffs. These levies are considered burdensome for businesses.
Hotman Paris, a renowned lawyer and owner of the entertainment business Atlas Beach Club in Bali, also protested against the world’s highest tax policy. He argued that such taxes could lead to an increase in layoffs in the tourism sector.
Hotman compared Indonesia to Thailand, which reduced entertainment taxes to 5%, resulting in a continuous increase in Thai tourists. He expressed concern that Bali, just recovering from the pandemic, has to face high taxes.
