The hospitality industry pays the highest tax rates to Jakarta, yet the most affected by the government-imposed coronavirus social restrictions. The industry’s plight warrants utmost attention from the Jakarta government. Closing down hotels are more financially sensible than serving a handful of guests. Many have filed bankruptcies. For the remaining operators, caving in seems to be an easier option.
During this painful period, it is all the more reason to demonstrate our responsibility to the hardworking employees who now feel insecure. We must protect their employment—over 800,000 of them in the industry. With the help of the Jakarta government, we can.
Taxation is a burning priority. Hotels and their F&B establishments are the highest taxed sector in the property industry. Both revenues and incomes are subject to tax, on top of the exorbitant asset-based property tax (Pajak Bumi dan Bangunan or PBB) which is based on runaway increases of formal land valuations (Nilai Jual Objek Pajak or NJOP).
The hospitality industry collapsed as soon as the government-imposed Large-Scale Social Restrictions (Pembatasan Sosial Berskala Besar or PSBB) was announced on 10 March 2020. Starred hotels’ occupancy rates in Jakarta plunged to record lows: 12.7% and 14.5% in April 2020 and May 2020 respectively, according to the national statistics agency BPS. Hotel staff greeted no guests; housekeepers made up no rooms; servers waited no tables; cooks and chefs prepared no food as supplies rotted; gardeners manicured unseen landscapes.
Taxes on revenues include a service charge of 10% and an F&B surcharge (Pajak Bangunan 1 or PB1) of 11%. Reliefs on these will encourage more consumer spending. As many flights are suspended, consumer will turn to hotels as a place to release pent up desires for leisure.
The hospitality business is subject to 22% corporate income tax. A relief on this will aid hotels to stay afloat, avert mass layoffs and recover quickly. As a comparison, the property leasing business—i.e. offices and malls—is not subject to any corporate income tax, only revenue-based ones: value added tax (Pajak Pertambahan Nilai or PPN) and final tax (Pajak Penghasilan or PPH4(2)).
Effective tax rates for hotels range from 21% to 28% of revenue depending on profitability.
While the tax rates have remained constant, Jakarta’s minimum wage (Upah Minimum Provinsi or UMP) has gone up sharply and average daily rates (ADR) of hotel rooms have slid down. The UMP to ADR ratio for 5-star hotels was 1.6 in 2013 and is projected at 5.1 in 2020; for 4-star hotels the ratio was 1.0 in 2013 and is projected at 3.8 in 2020. Profit margins are razor thin.
Starred-hotels (one to five) make up 364,000 of the total 776,000 accommodation rooms. The remaining 412,000 rooms are melati and others, according to BPS. Based on Jakarta Property Institute (JPI) estimates, they employ 822,587 workers, of which 566,498 are permanent staff and 256,088 are on daily contracts. Their jobs are at risk; their families fear starvation.
The discounts on PBB in 2020 were indeed a balm, but not enough a relief to boost consumer spending and rescue hospitality staff. Jakarta’s hospitality industry will be slow to recover as it only depends on business activities. It is devoid of a serious weekend economy to fill up the steep fall in occupancy rates during weekends, especially long ones when people flee the city in hoards. The hospitality industry underpins Jakarta’s service economy. To that end, we implore the Jakarta government to consider tax reliefs. Such assistance will save the heavily burdened hospitality industry and our vulnerable staff from layoffs. We will greatly appreciate your attention given the double pressure the industry faces: highest tax rates and social restrictions.
