Scrapping VAT on domestic airfares could lower fares

The idea of exempting domestic airline tickets from VAT is seen as a way to lower fares and encourage travel within the country. Aviation observer Alvin Lie said the move is important for Indonesia, which relies on air transport to connect its archipelago. He said domestic tickets are still subject to 11 percent VAT under Law No. 7 of 2021 on Tax Regulation Harmonization. That burden helps shape the final price along with other components such as fuel surcharge, PJP2U, and mandatory Jasa Raharja contributions. Alvin said the arrangement is odd because international flights are charged 0 percent VAT. He also compared it with other public transport such as trains, buses and water transport, which do not collect VAT on passenger services. If the tax is removed, he estimated passenger numbers, seat occupancy and interregional connectivity could rise, with spillover effects on tourism, hotels, food services, logistics and UMKM.