Airlangga: Local Governments Can Apply Taxes Lower Than 40-75 Percent

Coordinating Minister for the Economy Airlangga Hartarto said local governments could impose lower tax rates for special entertainment services which are now set at 40-75 percent.

The amount of the special entertainment tax rate previously complained by a number of business actors was discussed in a meeting of President Joko Widodo with ministers of the Advanced Indonesia Cabinet at the State Palace, Jakarta, Friday.

"We can convey that (the government) of the regions can impose taxes lower than 40 or 70 percent according to their respective regions," said Coordinating Minister for the Economy Airlangga Hartarto as quoted by ANTARA, Friday, January 19.

In Law Number 1 of 2022 concerning Financial Relations between the Central Government and the Regional Government (UU HKPD), it is stated that certain goods and services tax (PBJT) for entertainment services at discotheques, karaoke, nightclubs, bars, and steam/spa baths is set at a minimum of 40 percent and a maximum of 75 percent.

Airlangga explained that entertainment tax rates can be applied lower because a number of provisions in the articles of the HKPD Law provide room for this reduction.

In Article 101 of the HKPD Law, local governments can provide fiscal incentives to entertainment business actors and services, in the form of reduction, relief and exemption or elimination of tax principals, the principal of levies and/or sanctions.

Then, Article 6 of the HPKD Law also stipulates that local governments are prohibited from collecting types of taxes if the potential for entertainment in these areas is inadequate.

The provision regarding the amount of tax rates below the minimum limit of 40 percent for special entertainment will be detailed in a circular issued by the government.

"The incentives given are of course related to the related sector, later it will be detailed. So a circular letter with the Minister of Finance and the Minister of Home Affairs will explain this more because in the law it is discretionary, so of course we don't want a'moral hazard', so it must be protected by a circular," said Airlangga.

The government assesses that fiscal incentives need to be given to entertainment businesses considering that the tourism sector has just recovered from the impact of the COVID-19 pandemic.