Indonesia Considers Removing VAT on Airline Tickets to Boost Domestic Travel

Indonesia is contemplating the removal of Value Added Tax (VAT) on domestic airline tickets, a move expected to significantly reduce air travel costs and stimulate domestic tourism and the broader economy. Aviation observer Alvin Lie highlighted the critical role of air transport in connecting Indonesia's vast archipelago and emphasized that ticket affordability directly impacts economic activity and public mobility.

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As an archipelagic country, Indonesia is highly dependent on air transportation to connect various regions.

Lie argued that eliminating VAT on domestic flights would make air travel more accessible, encouraging more people to fly within the country. This increase in domestic travel, he explained, would create a positive ripple effect across various industries, including tourism, hotels, culinary businesses, logistics, and small and medium enterprises. He questioned the current policy, noting it as an anomaly where domestic flights are taxed while international travel is not.

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The removal of VAT has the potential to make ticket prices more affordable, thereby increasing public interest in using air transportation for domestic travel.

Furthermore, Lie pointed out the disparity in taxation compared to other public transportation modes, even luxury trains and buses, which are not subject to VAT on passenger services. He suggested that competitive ticket pricing could enhance passenger volume and aircraft load factors, thereby strengthening airline financial performance and enabling the development of new routes. This improved connectivity, he concluded, would foster regional economic growth through increased trade, investment, tourism, and labor mobility, contingent on the government's political will to promote a more efficient and affordable transportation industry.

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Domestic ticket prices are subject to VAT, which is an anomaly because international travel is not charged VAT, so why is domestic travel charged VAT?