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Hotels & Restaurants Call for 50% Cut in 10% VAT Tax.

PHRI Chairman Says Tourism Tax Practice is Uncompetitive. VP Kalla Denies He Supports a Tax Cut.

(3/14/2008) The Jakarta Post reports that the Indonesian Hotel & Restaurant Association (PHRI) has called on the Government to cut by half the current 10% value-added-tax (VAT) added to hotel and restaurant bills as a step to increase tourism flows.

PHRI Chairperson, Yani Sukamdani said: "Hotels and restaurant owners are forced to raise their rates due to the surging price of commodities. This condition has put us in a more difficult position to lure customers."

Warning that current tourism targets might be hampered if the tourism sector did not receive the requested tax cut, Sukamdani pointed to other countries in the region who have reduced taxes.

According to the PHRI Chairperson, Malaysian only charges a 5% VAT and Singapore only 4% VAT which renders Indonesia non-competitive in its taxation practice.

Indonesia's Minister of Culture and Tourism, Jero Wacik, has set a nation-wide goal of 7 million tourists generating US$6.4 billion in foreign exchange for Visit Indonesian Year 2008. Last year Indonesia managed to attract 5.5 million visitors who spent US$4.8 billion. The latest targets, if achieved, represent a +27.3% increase in foreign visitors and a +33% increase foreign exchange earnings.

Sukamdani's comments were made following a meeting with Vice President Jusuf Kalla who the PHRI Chairperson says supports the call for the tax reduction and more spending on tourism promotion.

VP Denies He Supports Tax Cut

However, in a subsequent article in Bisnis Indonesia, the Indonesian Vice-President was quick to deny press reports that he personally supports a 50% cut in the hotel and restaurant VAT tax and a reduction of import duties that range as high as 300% to 50%.

In denying the reports, Kalla said: "Business people are always asking for something. That's the way they work. But, if there is no tax how can we build and repair the roads in front of the hotels and restaurants? The taxes will remain as they are."