In a recent move, the government has officially rolled out adjustments to the entertainment tax rates, marking a significant shift that took effect on January 5, 2024. This alteration has brought about noteworthy changes, particularly affecting specific entertainment venues in Jakarta, where tax increments of up to 40% have been implemented. Let’s delve into the intricacies of this development!
Analyzing the provisions laid out in Law No. 1/2022 concerning Financial Relations between the Central Government and Regional Governments (Financial Relations Law), it’s evident that generally, the specific goods and services tax (PBJT) is capped at 10%. However, there’s a notable exception for the entertainment services category, where the rates surpass the 10% threshold.
“Specifically, the PBJT rate for entertainment services at discos, karaoke bars, nightclubs, bars, and steam baths/spas is set at a minimum of 40% and a maximum of 75%,” as detailed in paragraph (2) of Article 58 of the policy, as reported on Tuesday (16/1/2024).
This implies that only entertainment venues like discos, karaoke bars, nightclubs, bars, and spas will bear a minimum tax rate of 40%.
Conversely, other PBJT objects, encompassing food and/or beverages, hotel services, parking services, and arts and entertainment services, will be subjected to a maximum rate of 10%.
To understand the broader context, entertainment tax can be construed as a levy imposed on the organization of any form of paid entertainment. This encompasses a spectrum of events, from performances and shows to games and gatherings. On the flip side, PBJT is a tax paid by end consumers for the consumption of specific goods and/or services.
The government has set the 40% figure as the minimum rate, with local authorities empowered to set rates, factoring in considerations such as community purchasing power and the region’s financial needs.
In recent times, the entertainment tax rate has become a focal point, drawing critiques from notable figures like lawyer Hotman Paris and singer Inul Daratista, who is also the proprietor of Inul Vizta.
However, it’s crucial to note that the protested rates of a minimum 40% and a maximum 75% exclusively apply to the entertainment sector, covering discos, karaoke bars, nightclubs, bars, and spas. Essentially, the entertainment tax rate for other sectors remains capped at a maximum of 10%.
“The rates only apply to entertainment services such as discos, karaoke bars, nightclubs, bars, and spas. In other words, the entertainment tax rate for everything else remains at a maximum of 10%,” elucidated Prianto Budi Saptono, Executive Director of Pratama-Kreston Tax Research Institute, in a statement quoted by CNBC Indonesia on Monday (15/1/2024).
Interestingly, the sectors within the entertainment industry subject to a 75% tax rate have actually decreased compared to the previous regulations outlined in the Regional Tax and Regional Retribution Law (UU PDRD).
Article 45 of that law specifies that for entertainment such as fashion shows, beauty contests, discos, karaoke bars, nightclubs, skill games, massage parlors, and steam baths/spas, the tax rate can be set at a maximum of 75%.
In the UU PDRD, the entertainment tax rate outside these specific sectors is set at a maximum of 35%, higher than the 10% rate in the Financial Relations Law, specifically for services other than entertainment such as discos, karaoke bars, nightclubs, bars, and steam baths/spas. Fashion shows, beauty contests, skill games, and massage parlors are also excluded from the Financial Relations Law.
Prianto emphasized that the increased rate in the Financial Relations Law, due to the minimum 40% limitation, will impact consumption in this sector. This is because taxes, besides serving to increase state and regional revenues, also function to regulate societal behavior.
“Indeed, these rates are quite high, potentially leading to a decline in public consumption of entertainment,” emphasized Prianto.
The implications of these adjustments in entertainment tax rates are wide-ranging, touching on economic behaviors and sparking a conversation about the delicate balance between taxation and public engagement in recreational activities. As the government navigates this terrain, discussions and debates on the subject are likely to intensify, shaping the landscape of entertainment taxation for the foreseeable future.
