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Bali Government Sets Entertainment Tax Rates at 10-15% Amidst Controversy

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The Secretary of the Provincial Government of Bali, Dewa Made Indra, announced that nine regencies and cities across Bali have agreed to set the entertainment tax rate, including spas, at 10 to 15 percent. This decision comes in response to the controversy surrounding the establishment of entertainment tax rates in Law Number 1 of 2022 concerning Financial Relations between the Central Government and Regional Governments (HKPD).

“We provide space for Regional Governments and business actors to reach an agreement so that the result, according to Minister (of Tourism and Creative Economy) Sandiaga Salahuddin Uno, some apply 10 percent, some 15 percent, already below 40 percent,” he said during the National Seminar on the Implementation of the HKPD Law for the Development of the Spa Industry in Indonesia in Gianyar Regency, Wednesday (31/1/2024).

Made Indra stated that this decision was made after the Bali provincial government held a meeting with the regencies and cities’ governments to discuss the issue of specific tax increases on Friday (26/1/2024). In the meeting, the regencies and cities’ governments provided fiscal incentives in accordance with Article 101 of the HKPD Law.

This article provides policy space for providing fiscal incentives to support ease of investment, in the form of reductions, alleviations, and exemptions or elimination of the principal tax, principal levies, and their sanctions. Additionally, this agreement also adheres to the Circular Letter (SE) of the Minister of Home Affairs No.900.1.13.1/403/SJ regarding Guidelines for the Implementation of Specific Goods and Services Taxes on Certain Arts and Entertainment Services based on Law Number 1 of 2022.

The plan is for the nine regencies and cities’ governments to issue policies regarding the 10 to 15 percent specific entertainment tax rates by mid-February 2024 at the latest. “We agree that all regencies and cities across Bali agree not to impose rates of 40-75 percent. We agree to use fiscal incentive policy instruments,” he said. The controversy over entertainment tax rates stems from the amendment of entertainment tax rates in Law Number 1 of 2022 concerning Financial Relations between the Central Government and Regional Governments (HKPD).

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One of its provisions sets the minimum and maximum limits of certain entertainment tax rates at 40 percent and 75 percent, respectively. The regulation specifies that this tariff change only affects five types of entertainment services, namely nightclubs, karaoke venues, nightclubs, bars, and spas. In response to this, the Indonesian Hotel and Restaurant Association (PHRI) of Bali and several spa entrepreneurs filed for a judicial review with the Constitutional Court to reject the tax increase.

They argue that the spa sector is not included in the entertainment sector but rather in the fitness or health sector developed based on Bali’s local culture. Additionally, several nightlife venue entrepreneurs have raised objections to the central government regarding the tax rate increase. The magnitude of this tax is at risk of crippling the tourism industry, which is just recovering from the impact of the Covid-19 pandemic, and will lead to a wave of job layoffs in the entertainment industry sector in Bali.

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The Minister of Home Affairs, Tito Karnavian, has announced that currently, only one region has implemented a relaxation of entertainment tax rates for businesses such as nightclubs, karaoke venues, bars, and spas, setting them below 40 percent. This region is the island of Bali.

“In Bali, they have already implemented this (tax relaxation below 40 percent),” stated Minister Tito to reporters at the Coordinating Ministry for Economic Affairs, Central Jakarta, on Monday (29/1/2024).

Minister Tito explained that the Bali Provincial Government has convened a meeting with all local mayors to agree on the rate of entertainment tax for karaoke venues to spas, set below 40 percent. This decision takes into account input from local businesses.

Currently only in Bali

Regarding the rate of entertainment tax for karaoke businesses to spas in the Jakarta Special Capital Region (DKI Jakarta), it is still under review. Currently, the Jakarta Provincial Government will gather relevant business stakeholders to agree on the rate of entertainment tax.

“For those in DKI Jakarta, they will gather business owners first to determine what is ideal, what is a win-win situation,” he emphasized. Minister Tito emphasized that regional governments can implement entertainment tax rates for karaoke businesses to spas below 40 percent. This relaxation considers job sustainability and business recovery post the Covid-19 pandemic. “But I encourage other regions to ensure job continuity and address post-Covid business challenges,” he concluded.

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Previously, the Coordinating Minister for Economic Affairs, Airlangga Hartarto, revealed the process to obtain relaxation of entertainment tax rates for karaoke businesses to nightclubs below 40 percent. Airlangga stated that relaxation of tax rates below 40 percent can be directly implemented by each regional head. Additionally, business owners can also directly request relief if they have difficulty paying the new tax rates regulated in Law Number 1 of 2022 concerning Financial Relations between the Central Government and Regional Governments (HKPD).

“The regional head can apply it as an official, sectorally, but businesses can also request it,” said Minister Airlangga to reporters at the Coordinating Ministry for Economic Affairs, Central Jakarta, on Monday (22/1). Moreover, the government through the Ministry of Home Affairs has issued Circular Letter (SE) of the Minister of Home Affairs Number 900.1.13.1/403/SJ dated January 19, 2024, which can be used as a reference for regional heads or local governments to provide fiscal incentives for entertainment businesses such as nightclubs, karaoke venues, bars, and spas.

Airlangga believes that this Circular Letter can be a solution for karaoke businesses to nightclubs that have difficulty paying tax rates ranging from 40 percent to 75 percent.

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