Outlook of Bali Tourism Sector
Travel enthusiasts and business people around the world either have Bali on their bucket list of travel or have already aimed at the island for starting a business in Indonesia. Bali has been an ever growing foreign tourism hotspot and has a proven record of gaining quick recovery whenever the island has been hit with adversity.
Bali’s tourism industry received a heavy blow when the Mount Agung volcano started erupting in November 2017. However, Bali bounced back with 14,000 visitors everyday, showing an astonishing recovery of over 90% by February 2018. Moreover, Indonesia suffered a financial crisis in 1998 and Bali was comparatively less impacted when compared to other regions. The Jakarta riots also coincided with the economic recession resulting in a 29% decline in tourism. However, the devaluation of the Indonesian Rupiah from Rp2,200/US$1 to Rp7,500/US$1 acted as a catalyst in boosting the tourism industry.
Even though the Average Daily Rate (ADR) of hotels in the South Pacific dropped by 10% in March 2020, the ADR performance for Bali was well maintained. Moreover, some places like Musa Dua/ Tanjung Benoa saw an increase in ADR. Culmination of all these factors showcases the promise Bali poses for foreign investment in the tourism sector in Indonesia.
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Steps Taken to Recover Indonesia Tourism Sector from The Pandemic
The Indonesia tourism industry plans to bounce back from the tourism drought caused by the novel coronavirus by accelerating vaccine drives in Bali, Bintan and Batam. The aim is to welcome back tourists to the resort islands by the end of July.
Tourism and Creative Economy Minister Sandiaga Uno said the government is in talks with Singapore, China, South Korea, India, the Netherlands and United Arab Emirates for potential travel bubbles that will allow their nationals to visit sites that have curbed Covid-19 infections through vaccinations. While the government is considering allowing limited foreign travel to endorse the ailing tourism industry, Ukraine and Poland are also keen on sending a set number of tourists through chartered flights.
Reviving Lombok tourism
Lombok, also referred to as the ‘New Bali’, is also expecting tourists as the government plans to reopen tourism in Bali by the end of July. In preparation, Lombok has started giving out vaccines to tourism operators and will continue the vaccination drive till all 4,230 tourism workers are inoculated.
Indonesia SEZ (Special Economic Zone): Lombok – Untapped Opportunities in ‘The Next Bali’
As charming as its world renowned neighboring island Bali, Lombok is Indonesia’s hidden gem and is on its way to becoming a prime tourist destination. The island has everything that Bali has to offer and in addition, its wildlife and scenery makes it a blissful paradise for tourists.
Investment in Lombok – Overview of The Mandalika Development Project
Lombok’s Mandalika Development Project, conceived by President Susilo Bambang Yudhoyono’s administration, aimed to create a luxury hospitality industry in Lombok similar to Nusa Dua in Bali. The Indonesian Tourism Development Corporation (ITDC), the same organisation that was tasked with coordinating the transformation of Bali, has been given the responsibility to act as the project developer in Mandalika. In 2017, President Joko Widodo declared Mandalika as a priority destination and center of investment in Lombok.
The Mandalika Project of Lombok lies in a Special Economic Zone owing to which it enjoys numerous SEZ incentives including tax and non-tax benefits. SEZs also offer tax breaks of up to 50% for investments over US$1.2 million for a duration of 5 years. For investments above US$1.2 Billion the tax break is extended up to 20 years. Local taxes applicable in the hospitality industry is reduced by 50 to 100% for businesses operating in SEZs.
Other SEZ incentives include, VAT refund Scheme for Foreign Passport holders, exemption of VAT and Sales Tax on Luxury Goods and Immigration Relaxations. With a plethora of incentives on offer due to its inclusion in the SEZ list, Madalika poses to be a lucrative investment opportunity for foreign investors.
Roadmap and Progress
The Mandalika Project is the largest project of its kind in South East Asia covering 1175 hectares of coastal land. The US$3 Billion project aims to have more than 16,000 hotel rooms, a waterpark, a 27-hole golf course and 1,500 villas. Another unique characteristic of Mandalika, which sets it apart from Bali, is the fact that it is designed as an eco-tourism destination. ITDC has claimed that 51% of its total area will be designated as “green space” to protect the region’s natural beauty and maximising the resorts’ panoramic views. Environmental friendly technologies such as solar plants, water desalination plants, and tech savvy greenhouses will be used to sustain a majority of the facilities in the resorts, working towards the goal of reducing carbon footprint.
Mandalika International Street Circuit
Expected to draw tourism in Lombok, the 4.3km track will host rounds of the MotoGP World Championship and World Superbikes Championship. Construction of the track has been unaffected by the pandemic and is proceeding normally.
Steps Taken by the Government to Promote Lombok tourism
The government has accelerated the development of Lombok by including the island in the ten priority tourist destinations. The Integrated Tourism Master Plan (RIPT)-Lombok Island is a detailed plan being drafted to develop a resilient, inclusive and sustainable tourism ecosystem in Lombok. Presently RIPT-Lombo Island has reached the stage of drafting a legal umbrella in the form of a Presidential Regulation. The South Coast and its surroundings including Mandalika have been selected as a Key Tourism Area and will be the focus of development in the coming five years.
The government plans to improve connectivity from ports and airports to facilitate tourism. They also aim to preserve and promote the cultural diversity of Lombok. Major international chain resorts, including Pullman, Paramount, Novotel, Royal Tulip, and Grand Mercure Hotel have already started to establish their properties in Mandalika. With a projected 12 Million tourists to arrive in 2045 as compared to 2.4 Million in 2018, Lombok Island is expected to become a world-class tourism destination.
Tax Obligations in Hospitality Industry in Bali and Lombok (Mandalika)
Bali is one of the most popular tourist destinations in Indonesia, which in turn attracts numerous foreign investors looking to participate in the thriving hospitality industry. However, Bali imposes strict tax regulations and statutory compliances for the hospitality industry. All businesses in this industry, ranging from luxury resorts to AirBnBs, must be in compliance with all statutory and tax obligations.
Three major taxes are imposed on the hospitality industry in Bali:
- Local Taxes: Local Taxes, commonly referred to as “tourism taxes” are imposed on services rendered including restaurant tax and accommodation tax. The tax rates vary according to the services rendered and this tax must be added in the invoice provided to the customers.
- Service Charge: Service charge is 5 to 10% additional fee paid by the customer to the business. The funds collected should be distributed among the employees of the business. As the service charge counts as an income it is taxable and is added to the invoice before charging the local tax.
- Corporate Income Tax: This tax is levied on all businesses in Indonesia including the hospitality business. The tax rate varies on different aspects including the total revenue of the business and time elapsed from commencement.
All foreign businesses must furnish their Investment Activity Report either quarterly or half yearly and must abide by the deadlines of tax payment.
Tax Regime in Bali vs Mandalika
|Local Tax||Varies from 10 – 12.5%||Exempt|
|Service Charge||Varies from 5 – 10%||Varies from 5 – 10%|
|Corporate Income Tax||Varies from 12.5 – 25% based on annual revenue||Upto 50% Tax breaks|
Make Sure Your Business Complies with the Indonesia Company Act
Starting a business in Indonesia comes with its fair share of challenges. A foreign investor might face difficulties while registering their business as they might not be very well versed with various nuances of the Indonesian Companies Act. While you focus on the core business aspect of your Company, InCorp’s comprehensive business solutions can help you in the technical and managerial facets of setting up your business in Indonesia.
To help your company comply with the accounting and tax reporting rules of Indonesia, InCorp provides a wide array of services from assistance in maintaining your books of accounts to assistance in all tax related nuances including allotment of Tax Identification Number (NPWP) and Tax Audits. On the legal side, our consultants provide legal guidance helping companies to comply with applicable laws and regulations in the country.
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- Foreigners are allowed to set up businesses in Indonesia, however they cannot wholly own a local company.
- According to The World Bank Group’s Ease of Doing Business ranking, Indonesia ranks 73 in the world to do business, ahead of the Philippines (rank 124), below China (46) and Malaysia (15).
- Abundant natural resources, growing middle class population, skilled workforce combined with a favourable investment climate has set the stage for foreign investors to invest in Indonesia.
- The average total fees per Indonesia company formation engagement amounts to US$19,440 which includes company set up, company secretary, Government registrations and opening a corporate bank account.
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