Indonesia Studying to Scrap Luxury Goods Tax on Foreign Cruise Ships & Yachts

Scrapping the luxury goods tax (PPnBM) on foreign cruise ships or luxury yachts would encourage the arrival of ships and yachts to Indonesia, hence boost the number of foreign tourists. This would enable authorities to collect more foreign exchange earnings from the tourism industry.

Luhut Panjaitan, Indonesian Coordinating Minister for Maritime Affairs, said the government so far only manages to collect around IDR 3 billion (approx. USD $200,000) in PPnBM per year from the arrival of foreign cruise ships or luxury yachts. However, based on internal calculations at the ministry, government revenue could see an additional IDR 6 trillion (approx. USD $414 million) injection if the tax would be cut to zero.

The Indonesian government under the leadership of Joko Widodo has repeatedly said that it wants to gain more revenue from the tourism industry. Although this industry already ranks second in terms of the nation's biggest foreign exchange earners (after palm oil), it is assumed Indonesia only utilizes a tiny portion of the full potential of this industry.

However, it will take much more than simply offering fiscal incentives to tap Indonesia's full tourism potential. For example, much more infrastructure development is needed as well as more local tourist destinations (located near harbors). Meanwhile, the quality of local human resources (especially in the more remote areas in the eastern part of Indonesia) and coordination between the central and regional governments will need to be improved.

The proposal to cut the PPnBM is not new. Two years ago the Indonesian government was already working on such plans in a bid to establish Indonesia as a true yachting destinations (particularly around Raja Ampat and Komodo Island in the eastern part of the country).

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