About 100 exhibitors participated in Hotel Week Indonesia 2018, attended by government officials and top executives of several hotel operators, at the Jakarta Convention Center last week. (Photo courtesy of Hotel Week Indonesia)

From Regional Taxes to Water Policy, Hoteliers Face Obstacles in Doing Business in Indonesia

NOVEMBER 12, 2018

Jakarta. Hoteliers have called on the government to speed up deregulation and revise laws and regulations that currently hamper competitiveness in Indonesia's tourism and hospitality industries.

Maulana Yusran, deputy chairman of the Indonesian Hotel and Restaurant Association (PHRI), said tax regulations issued by regional and local governments in the country place a huge burden on hoteliers.

A 2016 government regulation imposes a sales tax on entertainment, hotel and restaurant services, while separate taxes apply to the use of ground and surface water, street lighting, motor vehicles and advertising. The first three mainly affect the hospitality industry.

Regional and Sales Taxes

Speaking at a hospitality industry exhibition and conference in Jakarta on Thursday last week, Maulana, better known as Alan, said the regulation allows provincial, city and district governments to tax complimentary services offered by hotels.

It further allows local governments to impose taxes of up to 75 percent on the revenue hotels derive from entertainment services, such as pubs, nightclubs and discotheques.

"At the end of the day, all these [taxes] affect our competitiveness. Talking about regulations, this costs entrepreneurs [in the hotel industry] a lot," Alan told participants at Hotel Week Indonesia 2018.

The PHRI, which represents major hotel operators and owners in the country, was one of the associations supporting the conference and exhibition, which took place at the Jakarta Convention Center from Thursday to Saturday.

About 100 exhibitors participated in the event, attended by government officials and top executives of several hotel operators. Erzaldi Rosman Djohan, the governor of Bangka Belitung, Anang Sutono, senior advisor to the Ministry of Tourism, and Agung Kuswandono, deputy in charge of natural resources and services at the Coordinating Ministry of Maritime Affairs, spoke during the event.

Alan said industry players also consider some tax regulations to be outdated and no longer relevant to current practices.

"For example, the government imposes a hotel and restaurant tax, but if the intention is to tax all accommodation services, it should also include homestays, condotels, villas and many other newer types of accommodation that are flourishing now. It should be called an accommodation services tax," he said.

"The same with restaurants. It should be changed to a sales tax on foods and beverages, not just for restaurants, because providers of these products also include cafés and many more," he added.

Water

Another matter that worries hoteliers is the ongoing discussion between the government and lawmakers on a draft law on the use of ground and surface water. Alan said the PHRI fears that the new law would result in the private sector encountering further bureaucracy to secure water-use permits.

Alan said the PHRI has seen the draft law and that it prioritizes the public sector, including state-owned enterprises and those belonging to regional and local governments, in the allocation of water-use permits.

"Permits to use water, as a natural resource, will be heavily regulated for private-sector businesses, which will be subject to stringent and tough prerequisites," he said.

The PHRI noted that there are also other difficulties, including the high cost for business permits, while the absence of clear copyright laws often leads to legal disputes.

Online Travel Agencies

Many hotels are currently struggling to deal with digital disruption, as an overreliance on online travel agencies has been eroding their margins. They claim that these agencies demand high commissions, while hotels are at the same time facing stiff competition from rivals amid an oversupply of rooms in most major cities in the country.

Alan said the government should better regulate the way online travel agencies operate, as many lack legal entities in the country. This causes confusion over their tax liabilities, while a lack of proper supervision also leaves room for illegal activities, such as prostitution and even terrorism.

"Nowadays, people can easily go online and rent a homestay with less than 10 rooms. Poor oversight of online travel agencies creates unfair competition with us, the hotel industry, who pay for all these permits and who are taxed on many things," he said.

The government has set a target to attract 17 million foreign tourists to Indonesia this year and 20 million next year, which is expected to stimulate the economy.

However, hoteliers said the government must first improve the ease of doing business in the sector to prepare the country for the greater influx of tourists.

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