‘Nothing left’: Indonesia’s tourism industry fears wipeout under tax hike

Plans to introduce 40-75 percent tax rate for entertainment services prompt fierce backlash from businesses.

Foreign tourists hanging out a beach bar in Kuta. There are colourful beach bags and umbrellas
Foreign tourists will have to pay more for drinks and entertainment if the tax hike goes through [File: Sonny Tumbelaka/ AFP]

Jakarta, Indonesia –  After spa therapist Murniyati survived COVID-19 on a sparse salary, she thought the worst was over.

But after the Indonesian government’s announcement of a steep rise in taxes on entertainment services, she fears the salon where she works could be forced to close, leaving her unemployed.

“My husband is just a taxi driver so our combined income is low. Our life, my life, depends on him and me,” she told Al Jazeera.

Murniyati is just one of the countless workers across Indonesia who could be affected by the plans to apply a 40-75 percent tax rate to entertainment services such as spas, bars, nightclubs and karaoke joints.

The proposed hike has sparked a fierce backlash from businesses, including a court challenge by spa owners in Bali.

Hariyadi Sukamdani, the chairman of the Indonesian Hotel and Restaurant Association, said in a press conference last month that the changes would lead to job losses in an “industry that absorbs a significant amount of labour and does not require higher education, making it essential for the general population”.

Amid the blowback, the government announced it would delay the hike pending an evaluation.

“We will collectively assess what the impact [of a higher entertainment tax] would be, especially for small business owners,” Coordinating Maritime Affairs and Investment Minister Luhut Binsar said last month.

Sofie Sulaiman and Murniyati. They are standing at the entrance to the spa
Sofie Sulaiman, 55, left, said the spa worked hard to keep all of their staff during the pandemic, but they are not sure if they could get through a tax hike [Madeline Croad/Al Jazeera]

Still, Sofie Sulaiman, Murniyati’s manager at Jamu Body Treatments in Jakarta, is angry.

The spa provides jobs for many women, all of whom are from less well-off backgrounds. Many of them are widows and single mothers, and most have been working at the spa for more than 20 years.

Sulaiman said her business would need to cover the cost of the tax hike, as it is too high to pass on to customers.

“Our market is teachers. It’s not businessmen, it’s not tourists, it’s not honeymooners who spend money when they travel. They are just teachers, they are just housewives,” Sulaiman told Al Jazeera.

Sulaiman said it would be impossible to make a profit under the new tax regime.

“We will sacrifice ourselves,” Sulaiman said, adding that she might have to close down. “There is nothing left after that.”

Revenue and incentives

Bhima Yudhistira, an economist from the Center of Economic and Law Studies, said the tax hike could boost revenue for local governments and provide greater autonomy to communities, but the lack of consultation had left officials divided.

“Some local governments which have huge tourism spots such as Bali see this as not a potential for revenue, they see this as a new tax burden after COVID-19,” Yudhistira told Al Jazeera. “They will lose because the number of tourists will drop and businesses will be affected.”

COVID-19 had a devastating effect on Indonesian businesses and workers, with 2.67 million jobs lost in 2020 and more than 30 million micro, small and medium enterprises (MSMEs) forced to close during the pandemic, according to the national statistics office.

Other countries such as Thailand, Singapore and Malaysia could be new options for tourists, Yudhistira thinks, which could be another attack on Indonesia’s entertainment industry post-Covid [Madeline Croad/Al Jazeera]

Under the planned tax revision, the rate is set by each local government, making November’s local elections especially important, said Yudhistira, who is sceptical about the government’s promise to provide relief measures and incentives to affected businesses.

He believes businesses could be “cherry-picked” depending on their political connections.

“We see that many of the local government incentives previously didn’t work well … The industry owners or business owners that have strong connections to the local government leaders, to the governors, they have incentives.”

Indonesia has made a name for itself as an affordable destination, but some government officials have expressed their hope that higher costs will drive away visitors on a budget in favour of high-spending tourists.

Gabby Walters, an associate professor of tourism and business at the University of Queensland, said that such an approach would be a mistake.

More than one million Australians visited Bali last year, most of them looking for a cheap, fun holiday. They made up a quarter of all tourist arrivals, making them the largest visitor group, according to official statistics.

“[Australian] Bali tourists want alcohol, they want to party, so you’ve seen a rise of beach clubs, nightclubs and that’s not what the high-yielding tourists are after,” Walters told Al Jazeera. “The way that the Bali tourism industry is structured, it’s set up to encourage and cater for that market.”

It is a market that could be put off by higher prices, at a time when tourism numbers are only just over half of what they were before the pandemic, Walters said.

“If there’s going to be a 40-75 percent increase to buy a drink in a bar or go to a nightclub or have a massage, then people are definitely going to look elsewhere,” Walters said, noting that other destinations in the region have been cutting taxes.

Thailand dropped a related tax to five percent to attract tourists and has seen a boom in arrivals. More than 28 million tourists visited the country last year, while Indonesia attracted just over nine million.

Moving forward, Sulaiman is unsure about the future of her spa, but she knows that shutting up shop and leaving her staff unemployed is a possibility.

She is confused, like many others in the industry, about the lack of consultation.

“I don’t think in any other country, you would find this kind of hike in tax,” she said. “They have never invited us to have a discussion.”

Yudhistira said the tax revisions were made too quickly, with those most affected left out of the conversation. He thinks there are other ways to increase local government revenue without damaging the entertainment industry.

“The burden for the entertainment industry is high, the number of laid-off workers … Instead of increasing the entertainment tax they should increase the other local government tax,” he said.

Spa manager and therapist Murniyati. She is sitting at the spa's reception desk. There is a pot of white orchids on the desk and ornately carved wooden doors behind
Spa therapist and receptionist in Jakarta, Murniyati, 36, said if she loses her job, her family will struggle to afford to live [Madeline Croad/Al Jazeera]

With the outcome of the government’s tax plans unclear, legal appeals pending and local elections looming, the future of the entertainment industry is uncertain.

For workers like Murniyati, so are their livelihoods.

“Our lives depend on our jobs. We are worried,” she said.

Source: Al Jazeera