The tax cut gives airlines some relief amid a weakening rupiah against the US dollar. (JG Photo/Afriadi Hikmal)

Indonesia Scraps Import Tax on Airplane Spare Parts


DECEMBER 22, 2015

Jakarta. The Indonesian government has scrapped its import tax on 21 categories of airplane spare parts as part of its latest economic stimulus package to counter headwinds faced by the country's airlines.

The move expands on a similar incentive in September that gave the airlines some relief amid a weakening rupiah against the US dollar, which has caused operational costs to spike.

"In the past few years, our airline transport and airplane rental industry has grown strongly, but we notice that most of the airplane maintenance is conducted overseas," Coordinating Minister for Economic Affairs Darmin Nasution said late on Monday.

"Based on our study, that was due to [lack of] spare part [availability]," Darmin said. "Therefore we released this policy to make importing spare parts easier."

Tengku Burhanuddin, a deputy chairman at the Indonesia Air Carrier Association (Inaca), welcomed the policy, saying it would improve the country's airlines' competitiveness, by reducing their operational costs.

While it clearly benefits major airlines like flag-carrier Garuda Indonesia, and Lion Mentari Airlines, the country's largest budget carrier, the policy would also boost the business of aircraft manufacturers like Dirgantara Indonesia, said Tengku.

The government had scrapped its value added tax for imported aircraft and any related components in September, as part of a wider policy package to lessen the burden from a stronger dollar, which has gained 14 percent against the local currency so far this year.

Indonesian airlines typically operate Boeing or Airbus jets to serve domestic routes and operate in-house maintenance units.

Aircraft maintenance at Garuda Indonesia makes up 15 percent of the company's total operational costs, which amounts to about $3.8 billion per year, according to Garuda's president director Arif Wibowo.

Still, Garuda managed to make a net profit of $50.1 million in the first nine months this year, compared with a $222.3 million loss a year ago, thanks to decline in global oil prices.