This Island Nation Raises Entertainment Tax to 40-75%, Highest in Southeast Asia

This Island Nation Raises Entertainment Tax to 40-75%, Highest in Southeast Asia

After Singapore increased its sales tax, Indonesia also revamped its national tax system by increasing the entertainment tax rate to 40-75%. This regulation was officially enacted on December 28, 2023, and became effective on January 1, 2024. Meanwhile, reporting and payment of this tax will begin on February 1. This percentage is the highest in the region, considering that Singapore has an entertainment tax of 15%, Malaysia 10%, and Thailand 5%.

The law governing the tax subjects for Arts and Entertainment Services in this country is stipulated in Article 55 Number 1 of the year 2022. Some subjects included in the Arts and Entertainment Tax are

a. Film showings or other forms of live audio-visual performances shown in a specific place;
b. Art, music, dance, and/or fashion performances;
c. beauty contests;
d. bodybuilding contests;
e. Exhibitions;
f. circus, acrobatic, and magic shows;
g. Horse racing and motor vehicle racing;
h. skill games;
i. sports games using venues/areas and/or equipment and facilities for sports and fitness;
j. recreational water rides, ecological rides, educational rides, cultural rides, snow rides, game rides, fishing, agrotourism, and zoos;
k. massage parlors and reflexology;
l. nightclubs, karaoke, discos, bars, and steam baths/spas.

Among various subjects, the ones affected by this tax increase are discos, karaoke, nightclubs, bars, and steam baths/spas, with rates ranging from 40% to 75%.

In this regard, Bhima Yudhistira, Director of the Center of Economic and Law Studies (Celios), noted that this ordinance has come under sharp criticism from the business community due to their limited involvement in the formulation process.

However, Yudhistira also emphasized that the newly announced regulations are still subject to revision. By issuing a Government Regulation in place of Law (Perpu), this step can be used to nullify certain provisions related to entertainment taxes, including the deferral or adjustment of tax rates.

Regarding the various criticisms that have emerged about this rule, Fajry Akbar, Research Manager at the Center for Indonesia, stated that the applied tax rate is considered higher compared to other countries, especially Thailand, which applies a 5% rate, as reported by CNBC. Even before the tax rate increase, some regions in Indonesia, such as Jakarta and Bali, were already considered to have high entertainment tax rates.

Meanwhile, an economist at the Center of Reform on Economics (Core) Indonesia, Yusuf Rendy Manilet, added that not all regions, business groups, and consumer purchasing power are uniformly able to pay a 40% tax just to enjoy entertainment. This opinion highlights the differences in purchasing power among communities in different regions, which must be taken into account when setting tax rates to comply with tax fairness principles.

In contrast to Indonesia, Malaysia has actually reduced its entertainment tax, effective from 2024. Malaysian Prime Minister, Datuk Seri Anwar Ibrahim, announced last October that the country's entertainment tax had been reduced from 25% to 10% for international performance subjects, with a complete exemption for local artists. This decision was made because entertainment industry players complained that the tax amount was too high.

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