Indonesia’s economy, tourism face challenges given tax hikes

Proposed tax increases on Indonesia’s entertainment services, including spas and nightclubs, threaten the livelihoods of workers and challenge business sustainability

Indonesia’s tourism sector, which has already been struggling post-COVID-19, is now facing a new challenge – a significant tax hike on entertainment services.

The Indonesian government’s proposal to apply a 40-75% tax rate on services such as spas, bars, and nightclubs has sparked a backlash from businesses and workers in the industry.

For instance, the spa industry has been providing jobs to women from less well-off backgrounds, including widows and single mothers, and unfortunately, they view this hike as unsustainable.

Sofie Sulaiman, manager at Jamu Body Treatments in Jakarta, expressed concerns over the spa’s ability to cover the increased tax, highlighting their clientele primarily comprises teachers and housewives, not high-spending tourists.

Economist Bhima Yudhistira from the Center of Economic and Law Studies notes that while the tax increase could boost local government revenue, it risks further burdening the entertainment industry, potentially leading to layoffs.

This comes when other regional destinations like Thailand are lowering taxes to attract tourists.

Simultaneously, Indonesia’s economic growth slowed to 5.05% in 2023, impacted by falling commodity prices and a tight monetary policy. The decline in prices of primary commodities such as palm oil, coal, and nickel, coupled with the central bank’s rate hikes, has dampened domestic consumption and exports.

Source: Newsroom