Indonesia to cut airfare tax to cushion fuel surcharge hike

[JAKARTA] Indonesia will slash the value-added tax on economy class tickets for two months to ease the burden of rising fuel surcharges on airfare to mitigate higher energy costs triggered by the Iran war. 

Fuel surcharges will jump to 38 per cent of the price of the most expensive airfare from 10 per cent, Coordinating Economic Minister Airlangga Hartarto said at a briefing on Monday (Apr 6). The government, though, is absorbing some of the cost by implementing a temporary tax cut to ensure overall ticket prices do not rise by more than 13 per cent, he said.

The government is budgeting US$76 million a month to ensure flights remain affordable. It will also cut import duties on aircraft spare parts.

Indonesian carriers last month pushed the government to raise fuel surcharges and airfare price ceilings to make up for rising jet fuel prices.

Regulators and airlines have put on hold discussions over raising the ticket price cap after agreeing to the other policy changes, Transport Minister Dudy Purwagandhi said at the briefing. Policymakers want to ensure carriers remain financially stable while protecting consumers’ purchasing power, he said.

Shares of PT Garuda Indonesia maintained an earlier gain of 1.5 per cent, while PT AirAsia Indonesia held a 2.4 per cent loss on Monday.

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Indonesia to let airlines increase fuel surcharges as aviation costs soar

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The government also reiterated that Pertamina will keep subsidised gasoline and diesel prices for vehicles unchanged as long as the average global oil price remains below US$97 per barrel this year. Based on this average oil price, the budget deficit should remain below the 3 per cent of gross domestic product limit, Finance Minister Purbaya Yudhi Sadewa said at the briefing. As of March, the budget deficit stood at 0.93 per cent of GDP.

Purbaya also said discussions are underway regarding possible pay cuts for ministers. BLOOMBERG