Change in Luxury Goods Tax Policy Might Mean No Luxury Yacht Tax
Blog > Gov't Policy | date: 24 Nov 2018
The proposal to cut the PPnBM (Luxury Goods Tax) is not new, but it has been gaining traction in 2018.
Luxury yachts imported to Indonesia to operate in tourism are currently taxed as high as 75% of the value of the vessel — nearly the cost of the yacht itself in import tax — making it too costly to import brand name boats (for commercial use). This is why the yacht tourism industry in Bali and througout Indonesia is mostly comprised of locally built vessels (phinisi, wooden boats and fiberglass) and not brand name yachts. The tariff on luxury yachts is based on Finance Ministry Regulation No. 35/PMK.010/2017, and Indonesia’s Finance Minister, Sri Mulyani Indrawati, said her ministry is currently studying a proposal to nullify this PPnBM tariff for foreign cruise ships & luxury yachts being imported into Indonesian waters.
The Indonesian government under the leadership of President 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.
The thinking goes that scrapping the PPnBM on foreign cruise ships & luxury yachts would encourage the arrival of ships and yachts to Indonesia, hence boost the number of foreign tourists and hence would enable authorities to collect more foreign exchange earnings from the tourism industry. Luhut Panjaitan, Indonesian Coordinating Minister for Maritime Affairs, said the government collects around IDR 3 billion (approx USD $200,000) PPnBM per year from foreign cruise ships or luxury yachts. They calculate government revenue could see an additional IDR 6 trillion (USD $414 million) increase if the tax was cut.
Boosting the Maritime Industry
We spoke with an industry expert last week about what this propososal would mean for the yacht industry in Indonesia. He gave the example of what happened in Thailand, which had a similar luxury yacht import tax a couple decades ago. When they dropped it, the economy did exceptionally well — look at the maritime & yacht industry in Thailand now — it’s booming, and everyone is winning. Thousands of new jobs have been created, skills of local workers have increased, new factories, marinas and infrastructure have developed. And likewise, more government revenue has come in through visiting yachts. There are many benefits to many industries in the maritime business, not just one sector.
Why would this be a big deal?
In the past, these tariffs have protected local companies from big cruise conglomerates and smaller luxury brand yachts that have more resources and global clout than local yacht tourism operators.
Will local yacht operators be hurt by increased competition from luxury brands?
Possibly. But the ability to adapt to new technology and competition is what great businesses do to succeed in a changing & progressive world. Finding new solutions through partnerships in a globalized connected world is the hallmark of democratic capitalism. Also if you calculate the cross over benefit to education, skills, infrastructure development — all of these shine a very positive light on implementing this tax cut. We support President Jokowi & the Ministry of Maritime Affairs & Ministry of Tourism’s initiative to increase foreign exchange earnings & bring Indonesia’s competitiveness up on the global stage.
16 November 2018
Maritime Coordinating Minister Luhut Binsar Pandjaitan said that the legal umbrella would be released this year, according to Detik.com. These rules will be contained in government regulations (PP) related to existing ones by revising them.
Sudah beres, kita ada perubahan satu pasal di PP ya sudah selesai. Jadi nanti tidak perlu pungutan-pungutan. (Berlakunya) harus tahun ini dong. It’s done, we have a change in one article in the PP, it’s finished. So we don’t need levies later. (Applicability) must be this year. Luhut said in his office, Jakarta, Tuesday (11/27/2018).
Luhut stressed that after the regulation was issued, there was no more PPnBM levies on foreign yachts coming to Indonesia. “Yes, there are no levies. The revenue is only a few billion, small, under Rp. 10 billion. Even if we open (delete PPnBM), maybe we can get trillions, the potential. Later ships will live in Indonesia, service in Indonesia, what in Indonesia,” he explained.
So there you have it: the Government through the Maritime Coordinating Ministry decided to remove Sales Tax on Luxury Goods (PPnBM) to ship foreign yachts & the legal umbrella is currently being prepared “this year”.