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Not related to efficiency, there will be no erasing VAT on aviation fuel. (Image via: Merdeka)
We Will Not Erase VAT on Aviation Fuel: Indonesian Finance Minister
Having been discussed for a long time, Indonesia’s Ministry of Finance finally dropped the idea of erasing Value-Added Tax (VAT) on aviation fuel for domestic flights. The reason was that it was not the best practice that applies internationally.Since February 2019, the Minister of State-Owned Enterprises, Rini Soemarno, had proposed the idea of erasing VAT on aviation fuel. The idea was proposed because VAT was considered as the culprit that kept aviation fuel’s price astronomical. She stated that even though Indonesia’s aviation fuel’s price is not that different to Singapore’s, there is still VAT.
The idea of erasing VAT for aviation fuel had run on a long track. In the discussion, the Ministry of Finance once compared the policy to other ASEAN countries such as Malaysia, Thailand, and the Philippines, stated the Head of the Center of State Revenue Policy at the ministry's Fiscal Policy Agency (BKF), Rofyanto Kurniawan.
Kurniawan pointed out that even those countries are still imposing VAT on aviation fuel. Indonesia slapped 10% VAT on aviation fuel, which was still considered as “cheap” if compared to Thailand. More about Thailand’s aviation fuel policy, he did not mention how it is more expensive than Indonesia’s.
However, after looking at the fact that in spite of the more expensive VAT, Thai airlines are still running its business, the Ministry of Finance then rejected the idea that erasing VAT on aviation fuel would contribute to airline’s efficiency.
Moreover, Kurniawan stated that through Government Regulation no. 71 of 2012, international flights are not obliged to pay the VAT. Now, other countries have also erased VAT on aviation fuel for international flights. Therefore, the policy is competitive enough.
On the other hand, the Ministry of Finance promised another incentive that would alleviate Indonesian airlines by revising Government Regulation no. 69 of 2015 with the exemption of VAT for leasing import jets which previously was slapped 10%.
Source: https://www.cnnindonesia.com/ekonomi/20190714052020-532-411907/lirik-aturan-negara-lain-kemenkeu-ogah-hapus-ppn-avtur
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