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Call for 50% Reduction in Hotel & Restaurant Tax.

Bagus Discovery Tour's Owner Says Lower Taxes Would Raise More Money for Island's Public Coffers.

(2/17/2008) Commenting in a page-one article in BisnisBali, the Secretary General of the Bali Hotel and Restaurant Association (PHRI-Bali) and owner of Bagus Discovery Tours, Bagus Sudibya, has thrown his support behind a proposal to lower the current tax charged on hotel and restaurant bills from 10% to 5%.

Guest dining at Bali restaurants and hotels presently pay a 21% tax and service surcharge on all their purchases. The amount over and above the 10% tax is typically a service charge for the employees of the hotel and restaurants.

"As a member of the tourism industry, I very much support the reduction of the hotel & restaurant tax to 5%," said Sudibya. He went on to explain that the current 10% tax level is too high and places a heavy burden on the Island's hotels and restaurants, affecting both their price competitiveness and product quality.

A Mistaken Assumption: It Doesn't Really Matter

"Don't always think that the tax is a burden only borne by the customer," warned the PHRI official. He added that the high tax rate causes operators to trim their margins in order to remain competitive.

The PHRI officials feels that combined tax and service surcharge of 21% is both high and especially burdensome. Sudibya said that in other competing destinations, such as Singapore, the highest tax charged is only 13%. He hopes that the government will lower the current tax level and help promote healthy growth in the tourism sector. Sudibya insisted that if the tax were reduced, the savings and growth in business would allow product enhancements, more training of staff and more promotional activities.

What Would the Government Lose?

In response to those who fear that a 50% reduction in the Hotel & Restaurant tax would represent an unacceptable loss in state revenues, Sudibya said he is confident that total tax revenues would actually increase as sales would increase and entrepreneurs would be more inclined to be more honest and transparent in declaring their tax liabilities.

Sudibya acknowledged that the proposal to lower the hotel and restaurant tax remains at the "idea stage" and that a detailed study of the impact of lowering the tax has yet to be undertaken. The final decision to lower these taxes remains the exclusive purview of the provincial government.

Government Responds

In the edition of BisnisBali published the day following Sudibya's comments, both the Chief of Tourism for Badung and his counterpart for the Province of Bali dismissed Sudibya's suggestion, saying the current tax was set by the central government and was based on a thorough and careful formulation.

Go Figure: A Game of Political Ping Pong?

Protestations from Bali officials that the current tax rate of 10% is immutable and is, in any case, set by the Central Government in Jakarta mesh oddly with the fact that when former President Suharto tried to lower the Hotel and Restaurant tax charged in Bali in the late 1990s local officials on the Island stonewalled the Presidentís decree, saying the decision lack an implementing regulation.