The Indonesian Hotel and Restaurant Association (IHRA) has warned that the government’s plan to raise value added tax (VAT) would weaken consumers’ purchase and dent business earning, ultimately leading operators to shed manpower for sustainability.
This warning was expressed in response to the government’s plan to adjust VAT from 11 per cent to 12 per cent as of January 1, 2025, so as to feed the state budget.
Sri Mulyani, minister of finance, said during parliament that the VAT increment was decided upon following thorough considerations.
However, hospitality industry players are of the opinion that the policy would come at a time of declining buying power.
IHRA has called for a reconsideration of the implementation.
Hariyadi Sukamdani, IHRA chairman, said the higher VAT would lead to lower sales, especially among the lower- and middle-class consumer segments.
This would deal an additional blow to Indonesia’s hospitality businesses, as the government is also planning to slash travel budget by 50 per cent in 2025.
“This could threaten the sustainability of hotel businesses,” said Hariyadi, adding that the impact would be especially felt in secondary destinations.
Government travel contributes significantly to the industry, as it makes up about 40 per cent of business for economy and mid-scale hotels. In destinations like Sulawesi and Papua, government travel can contribute up to 70 per cent of business.
Haryadi said destinations that enjoy a higher volume of international tourists, like Bali and Batam, might be better able to cope with the new VAT.
Once the VAT increment is in place, Haryadi said business would need to “implement survival mode through spending management or financing control”.
One of such measures would be to reduce daily manpower.
