Hariyadi Sukamdani, the chairman of the Indonesian Hotels and Restaurants Association (PHRI), speaks at a press conference at the Grand Sahid Jaya Hotel in Jakarta on Tuesday (14/11). (Photo courtesy of The Hotel Week Indonesia)

Foreign-Controlled Online Travel Agencies Must Pay Income Tax: PHRI Chairman

NOVEMBER 14, 2017

Jakarta. Indonesian hotel operators and owners are lobbying for foreign-controlled online travel agencies to establish local units and pay income tax, the chairman of the country's influential hotel association said on Tuesday (14/11).

While online travel agencies contribute significantly to hotel occupancy in the country, like a double edged sword they also erode the margins of hoteliers by charging commissions between 15 percent and 30 percent, much higher than conventional travel agencies.

As the internet has been used widely by almost everyone in their daily lives, it also serves for booking hotel rooms, and online travel agencies are tightening their grip on hotel operators and owners, who in the past were able to control the fees for the rooms they sell.

Hariyadi Sukamdani, the chairman of the Indonesian Hotels and Restaurants Association (PHRI), expressed the anxiety of hotel operators and owners in Indonesia, who are facing challenges from foreign-controlled online travel agencies such as Airbnb that help consumers book their rooms. Apart from high commissions for bookings made on their online platforms, they also do not pay income tax, Hariyadi said.

This results in the tax office putting the tax burden on the hotel industry players.

"We have raised this issue with the tax office, because if we are forced to pay their taxes, many of us will scream. They already give us high commission rates," said Hariyadi, whose family controls Indonesia's oldest hotel chains, Hotel Sahid and Hotel Sahid Jaya Internasional.

He spoke to reporters on the sidelines of a press conference held by CNG Media & Events for The Hotel Week Indonesia annual hospitality exhibition that to connects the sector's players in Asia Pacific.

Hariyadi was referring to the failure of foreign-controlled online travel agencies in fulfilling the obligations put on them by Article 26 of the Income Tax Law, which subjects non-resident taxpayers to withholding tax of 20 percent. Lower rates apply to agencies whose countries of origin have tax treaties with Indonesia.

Hariyadi argues that should online travel agencies establish their own "locally-incorporated" subsidiaries, the tax office would be able collect income tax directly from them.

"We have no issues with locally owned online travel agencies, as they have locally-incorporated companies here, it is the foreign ones that cause problems," he said.

The hospitality industry's market sees competition of not only foreign actors such as Airbnb, Booking.com and Agoda, but also home-grown Traveloka and Tiket.com.

Block the Service?

"The question is what if they say no?" Hariyadi said, pointing to the disputes between Indonesia's tax office and American tech giant Google, which according to the government has been paying too little to the state's coffers.

"We have discussed this with our fellow [hotel industry] players. Our friends at PHRI and the Indonesian Hotelier General Managers Association (IHGMA) are ready to support this [fight]," said the senior businessman, who is also the chairman of an influential business lobby group, the Indonesian Employers Association (Apindo).

"We asked our friends in Bali, what if we block their services over there? They said it wouldn't be much of a problem. I think we shouldn't be too worried about that, for destinations as famous as Bali attract people to the place itself, not to booking platforms. The gap will be quickly filled by local players," said the veteran hotel executive.

Hariyadi said it is now the right time for Indonesia's business community to start thinking about national interests.

"Let's take online shopping for example, it is inevitable that we see many goods imported from China, not locally made. The digital economy should improve our productivity, but if we end up importing things, what's the good in it?" said Hariyadi, whose Apindo has been consistently voicing concerns over the influx of goods from China.

The businessman said the association has submitted its worries regarding taxation of foreign-controlled online travel agencies to Finance Minister Sri Mulyani Indrawati and requested her to discuss with Communications Minister Rudiantara the steps needed to force foreign players to pay their income tax.

"We hope, there will be a solution [from the government] in the near future," he said.

The Jakarta Globe has earlier interviewed Alexander Naoyan, the chairman of the Jakarta Hotel Association, who was also concerned about the situation that makes room rates fall and strangles the country's hoteliers.

Hariyadi, Alex and other top executives from the industry will further discuss the issue during a conference at the Jakarta Convention Center on Nov. 23-25.