In a bid to make air travel more affordable for Indonesians, the Ministry of Transportation is exploring various options to reduce airfares, including the potential removal of ticket taxes. This move could see ticket prices drop by up to 11%, according to the ministry.
The Transportation Policy Agency (BKT) within the Ministry of Transportation is currently conducting a study to provide recommendations to the government on both short-term and medium-term measures to lower the cost of domestic economy-class air travel.
The proposal to abolish ticket taxes is currently under discussion by a relevant task force, and it is believed that such a move could lead to a significant decrease in airfares.
“The follow-up actions need to be discussed across sectors, in coordination with the task force,” said Adita Irawati, spokesperson for the Ministry of Transportation, to Bisnis on Monday, August 19th, 2024.
While the Ministry of Transportation has not set a specific target for the removal of ticket taxes, they have calculated that if the tax is abolished, airfares could potentially decrease by 9% to 11%.
This proposal aligns with a previous recommendation from the BKT, which suggested eliminating ticket taxes for airplanes to create a level playing field with other modes of transportation that have already had their taxes removed, based on PMK No. 80/PMK.03/2012.
The BKT has put forth four recommendations to the government to make air travel more affordable. One of the short-term recommendations is the removal of ticket taxes for airplanes to achieve equal treatment with other modes of transportation whose taxes have already been eliminated.
Additional efficiency measures include:
- Evaluating the cost per block hour (CBH) and formulating strategies to reduce it based on aircraft type and flight service.
- Accelerating policies for the exemption of import duties and the opening of certain import licenses for aviation needs, as aircraft maintenance costs account for 16% of total costs after aviation fuel.
- Implementing a route-based tariff mechanism to reduce the cost burden on airfares, as currently there is a double imposition of value-added tax (VAT), mandatory Jasa Raharja insurance contributions (IWJR), and passenger service charges (PSC).
- Evaluating the role of cargo revenue in airline companies’ income can be a consideration in determining airfares.
“From the results of the study and in-depth discussions with stakeholders, short-term and long-term policy recommendations need to be taken to lower airfares. These policies must be taken across sectors, not just by the Ministry of Transportation alone,” said BKT Head Robby Kurniawan in a statement on Monday, August 5th.
Minister of Tourism and Creative Economy Sandiaga Uno has expressed his support for the Ministry of Transportation’s proposal to abolish ticket taxes. According to Sandiaga, one of the contributors to high airfares is the tax levied on them.
“I strongly agree with the removal of the tax. Because if we look at it, one of the contributors to expensive ticket prices is the tax. However, we need to find a way, as our tax space is very limited, to replace the lost tax revenue from airoplane tickets. Perhaps we can prepare for that,” he said after the launch of the Artificial Intelligence Institute for Progress (AIIP) at Menara Mandiri, South Jakarta, on Tuesday, August 6th.
The potential removal of ticket taxes is a significant step towards making air travel more accessible and affordable for Indonesians. The Ministry of Transportation’s commitment to exploring various options to reduce airfares demonstrates its dedication to improving the country’s transportation infrastructure and promoting economic growth through increased connectivity.
