Expert and witness for the Government taking oath to testify at a judicial review hearing of the Law on Financial Relations Between the Central and Regional Governments, Tuesday (10/1/2024). Photo by MKRI/Ifa.

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JAKARTA (MKRI) — The Constitutional Court (MK) held a hearing to present the testimonies of expert/witness for the President/Government for cases No. 19/PUU-XXII/2024, No. 31/PUU-XXII/2024, and No. 32/PUU-XXII/2024 on the material judicial review of Law No. 1 of 2022 on Financial Relations Between the Central and Regional Governments (HKPD Law). Candra Fajri Ananda, the expert, denied the Petitioners’ allegation of discriminatory practice on the imposition of 40-75% specific goods and services tax (PBJT) on steam bath/SPA and karaoke.

“[The allegation] on the imposition of PBJT on certain art and entertainment services being discriminatory and unfair is inaccurate and has been disproven,” said the professor of the Economic and Business Faculty of Brawijaya University before the constitutional justices on Tuesday, October 1, 2024 in the plenary courtroom.

He argued that different tariffs reflect the implementation of justice to the community. The Government regulates how high-income groups contribute for the low-income groups as a manifestation of justice.

Maslow posited that the need for entertainment services in discotheques, karaoke, nightclubs, bars, and steam baths/spas is not a basic/primary need, but a tertiary one. It can be categorized as the needs for appreciation and self-actualization, thus is highly segmented. In addition, the Center for Constitutional and Legislative Studies (PuSKaPu) of the Law Faculty of the University of Lampung (2022) stated that the imposition of high tariffs on discotheques, karaoke, nightclubs, bars, and steam baths/spas is indirectly an application of the tax’s regulating function, for example, it causes people, especially teenagers, to reduce their consumption of entertainment services from these businesses.

This, Candra argued, seems to be the reason why the Government applies a 40-70% tax rate on those businesses. In this context, the Government imposes discriminatory tax rates, the basis of which is that the Government applies it to something categorical, i.e. on the basis of the purchasing power/wealth level of the taxpayers.

Candra also said that the HKPD Law also provides opportunities for the Government to provide incentives to taxpayers for certain reasons, such as creating a better business environment. Some regencies/cities have provided incentives to businesspeople in the hope that the regional original revenue (PAD) is well-maintained according targets, while business activities are able to grow and develop.

He also revealed that it is actually possible for business actors in this sector to have tax incentives in accordance with regional head regulations. The incentives must have clear targets and have time limits, all of which are determined by the local governments through legislation.

Implementation in Depok City

Gadjah Mada University tax law lecturer Adrianto Dwi Nugroho delivered his expert testimony online, while head of the Regional Finance Agency of Depok City Wahid Suryono delivered his witness statement on site.

Wahid said that the Depok City Government set PBJT rates for arts and entertainment services, especially discotheques, karaoke, nightclubs, bars, and steam baths/spas as stipulated in the Depok City Regional Regulation (Perda) No. 1 of 2024 in Article 29 paragraph (6). Depok sets a special PBJT tariff on entertainment for steam baths/spas and karaoke at 40% and for discotheques, nightclubs, and bars at 75%.

He said this is related to Depok City’s vision of a religious and environmentally-sound city of commerce and services. Religious means devotion to God Almighty and good morality and ethics.

“One of the consequences and our commitment to of Depok City’s vision is translated into relatively high tariffs to limit the development of sectors that do not support the vision,” he said.

Wahid explained that tax incentives in accordance with Article 101 of the HKPD Law in the Depok City Government is stipulated in the Depok City Regional Regulation No. 1 of 2024, which stipulates that businesses in arts and entertainment services that use an electronic-based turnover recording system integrated with the tax information system be given 3 percent PBJT reduction. Based on data on tax revenues and the number of taxpayers in the arts and entertainment services, the tariff increase did not lead to a decline in revenue. Instead, it has increased both tax revenues and number of taxpayers. The decline occurred due to a decrease in the consumers’ purchase power during the Covid-19 pandemic.

Also read:

Business Owners Ask Spa to Be Excluded from Art and Entertainment Category

Petitioners: Spa Businesses Could Go Under Due to 40 Percent Tax

Karaoke Bar Owner Challenges Provision on Entertainment Tax

Karaoke Bar Owner Revises Petition on Entertainment Tax

Business Owners Questions Entertainment Tax Rates

Business Owners Ask Entertainment Tax Be Capped at Ten Percent

Govt: High Tax Rates for Discotheques and Spas as Non-Basic Needs 

Expert: SPA Is a Health Service, Not Entertainment 

Expert: Same Tax Rates on Different Entertainment Services Unfair

Expert: High Services Tax Creates Domino Effect Including Rising Unemployment

Expert Explains Why Steam Bath/Spa Qualifies for Entertainment Tax 

The norms petitioned for review are Article 55 paragraph (1) letter l and Article 58 paragraph (2) of the HPPD Law. Article 55 paragraph (1) letter l reads, “Art and entertainment services as referred to in Article 50 letter e include: l. Discotheques, karaoke, nightclubs, bars, and steam baths/spas.” Article 58 paragraph (2) reads, “Specifically, PBJT rates for entertainment services at discotheques, karaoke, nightclubs, bars, and steam baths/spas are set at a minimum of 40% (forty percent) and a maximum of 75% (seventy-five percent).”

The Petitioners of case No. 19/PUU-XXII/2024 feel they were disadvantaged because their spa business, which is in the health category, has been categorized as providers of art and entertainment services alongside discotheques, karaoke, nightclubs, and bars. Consequently, they must pay 40-75% specific goods and services tax (PBJT) imposed by the regional government. Meanwhile, only 10% PBJT is imposed on massage and reflexology businesses. They ask that steam baths/spas be excluded from art and entertainment services.

Meanwhile, the petition No. 32/PUU-XXII/2024 was filed by business owners who represent six legal entities in tourism and service/entertainment: central executive board of the Indonesian Tourism Industry Association (DPP GIPI), PT Kawasan Pantai Indah, CV Puspita Nirwana, PT Serpong Abadi Sejahtera, PT Citra Kreasi Terbaik, and PT Serpong Kompleks Berkarya. They admitted to have had constitutional impairment due to the enforcement of Article 58 paragraph (2) of the HKPD Law.

The case No. 31/PUU-XXII/2024 was filed by Santoso Setyadji, owner of a family karaoke business. He challenges Article 58 paragraph (2) and the elucidation to Article 58 of the HKPD Law. Prior to the provision’s enactment, business owners had paid taxes to the regional government following existing regulations. The Petitioner argues that the latest PBJT tariff of at least 40% would impact his consumers, who would bear the brunt of the increase. He believes consumers would think twice about the costs of goods and/or services they purchase, as the costs would not include the high tax.

Author            : Mimi Kartika
Editor             : Lulu Anjarsari P.
PR                 : Tiara Agustina
Translator       : Yuniar Widiastuti (NL)

Disclaimer: The original version of the news is in Indonesian. In case of any differences between the English and the Indonesian versions, the Indonesian version will prevail.

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