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Indonesia to extend VAT relief to leased aircraft

Indonesia is close to extending its value added tax (VAT) relief to imported leased aircraft as a measure aimed at lowering airline's operating costs.

Provision of the tax relief will likely be done through the revision of a 2015 government order, and be made public sometime this week, Suahasil Nazara, head of the country's Fiscal Policy Agency, said at a press conference on 21 June.

He adds discussions to extend the relief have been going on "for a while," and coincided with the recent changes to the domestic airfare price floor and ceiling. He also stressed that the relief will help carriers to reduce their cost base.

Since 2016 the government has provided VAT relief to airlines importing owned aircraft and
aircraft components.

"In the latest revision, we hope that providing a VAT relief on imported leased aircraft, which is in the final stages of planning, will help to reduce the cost structure of airlines, says Nazara.

His comments came one day after the transport ministry indicated that a policy to further reduce domestic airfares is being worked on by Jakarta.

The transport ministry says this will be achieved by pushing low-cost carriers to reduce their domestic airfares on selected flights, encourage key industry players to lower their charges, along with the VAT relief.

However, it remains unclear if this means that there will be further changes to the domestic price floor and ceiling.

In March, the price floor on more than 1,000 domestic routes from 30% to 35% of the maximum limit. Two months later, Jakarta moved to reduce the price ceiling by up to 16%.

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