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Analysis: Indonesia mulls collecting tourism fee from airfares

Jakarta Post - May 8, 2024

Tenggara Strategics, Jakarta – The Indonesian government is in the process of passing a regulation to establish the Indonesia Tourism Fund (ITF). The fund will be used to support various major tourism events that can create multiplier effects, such as music concerts.

One of the methods being considered to collect money for the fund is from airfare by charging a tourism fee, which will likely increase flight ticket prices. The plan sparked objections from business players in the Indonesian tourism sector, including the country's airline industry, as well as advocates of consumer rights.

The Tourism and Creative Economy Ministry drafted a Presidential Regulation to be the legal basis for the Indonesia Tourism Fund (ITF). Tourism and Creative Economy Ministry's financing access director Anggara Hayun Anujuprana explained that a tourism fee added to foreign nationals' entry visa charges could be among the ITF's potential sources of funding. Other possible financing options for the ITF include the state budget, regional government budgets, investment returns, and grants amassed by the Indonesian Environment Fund (BPDLH).

A letter from the Maritime Affairs and Investment Coordinating Ministry letter dated Apr. 20, 2024 revealed a plan to collect tourism fee from airfare as a source of funding for the ITF. The letter invited the Indonesia National Air Carriers Association (INACA) to a meeting on Apr. 24, 2024 to talk about the plan, but now has been rescheduled to, an as of now, unspecified date. INACA Expert Council member Alvin Lie said that INACA was not aware of any plans for such a tourism fee and that there were no talks about the issue before having received the invitation to the meeting.

Indonesian Hotels and Restaurants Association (PHRI) secretary-general Maulana Yusran warned that the rule would negatively affect tourism businesses, which are still struggling to recover from the COVID-19 pandemic's impact. INACA chair Denon Praawiratmadja added that the proposed fee could risk spiking worsening airlines' business while they are still recovering from the pandemic and struggling with the Rupiah's depreciation against the United States Dollar, with 70 percent of the airline industry's operating costs tied to the latter.

Lie, who also chairs the Association of Indonesian Aviation Service Users (APJAPI), questioned the fee's benefits for passengers, citing the International Air Transport Association's (IATA) rule that forbids additional costs on airfares which does not provide benefits to passengers aside from service charge, travel insurance, and value-added tax (VAT). The Indonesian Consumer Organization (YLKI) requested the government to reconsider the proposed rule since it could run counter to the ITF's own aim of improving tourism to Indonesia.

The ITF will manage Rp2 trillion (US$123.65 million) of funds in its starting phase, and it is targeted to be a source of funding for the organizing of Indonesia's leading tourism events. The fund is planned to be managed like the Finance Ministry's Indonesia Endowment Funds for Education (LPDP), while also involving all stakeholders of the country's tourism sector. In response to reports about plans to apply tourism fee on airfare to fund the ITF, Tourism and Creative Economy Minister Sandiaga Uno claimed the additional fees would not burden the public.

It is unlikely that the tourism fee can effectively serve the ITF's goals. Implementing the fee without adjusting Indonesia's airfare price ceiling would directly impact the airline industry's profit margin. However, even if the fee is enacted alongside adjustments to the airfare price ceiling, it could still indirectly reduce airline profitability by reducing demand. In either case, domestic tourism would suffer.

What we've heard

An industry player said that the government, through the Coordinating Ministry for Maritime Affairs and Investment, has been trying to raise funds for tourism development. The recent policy to levy a tourism fee on airline ticket purchases is included among these fundraising efforts.

The source said that the idea of imposing a tourism fee will be quietly applied before the public response starts to accumulate. However, they believe that the program is likely to continue regardless of the public reaction because Minister Luhut initiated it. "Unless there is significant public and aviation industry opposition," said the source, regarding what it would take to rescind the tourism fee policy.

Meanwhile, the source also mentioned the government's various approaches to attract tourists. For example, they are trying to have Indonesia host more concerts featuring international artists. The government is also targeting tourists with higher spending potential. "These include those [tourists] who prioritize sustainability aspects," added the source.

"International banking networks are expected to help introduce domestic tourist destinations," said the source. The highlighted tourist destinations for the government include Lake Toba and Komodo Island.

[This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia's political and business landscape.]

Source: https://www.thejakartapost.com/opinion/2024/05/08/analysis-indonesia-mulls-collecting-tourism-fee-from-airfares.htm