Indonesian government has decided to absorb Value-Added Tax (VAT) on domestic economy airfares to curb price increases amid rising aviation fuel costs.
The increase in aviation fuel costs has placed considerable pressure on the Indonesian aviation industry, with fuel expenses estimated to account for around 40% of total airline operating costs. To ensure continued access to affordable air travel, the Indonesian government has decided to maintain domestic airfare increases at approximately 9% to 13% through fiscal mitigation measures and the regulation of airline surcharges.
As a result, a portion of the tax burden typically borne by passengers is now being covered by the government, helping to keep ticket prices in check despite rising operational costs.
One of the key policies underpinning this approach is the issuance of Minister of Finance Regulation (Peraturan Menteri Keuangan or PMK) Number 24 of 2026, concerning Value Added Tax (VAT) on scheduled domestic economy class commercial air transport services. This regulation serves as a form of government support in response to escalating aviation fuel prices.
“Through this policy, VAT on the base fare and fuel surcharge will be borne by the government, thereby reducing the cost of tickets paid by the public, even as airline operating costs rise due to higher fuel prices,” said Haryo Limanseto, the Spokesperson for the Indonesian Coordinating Ministry for Economic Affairs, on Sunday, the 26th of April.
The incentive will then be provided to service recipients for the ticket purchase and flight period for 60 days from the effective date of this Ministerial Regulation, which is on the 25th of April.
Air Transportation Business Entities, also known as airlines, which serve as taxable entrepreneurs that provide scheduled domestic economy class commercial air transportation services, are also now required to issue a tax invoice or other document equivalent to a tax invoice, and submit a Periodic VAT Tax Return in accordance with the provisions of tax laws and regulations.
In this recently issued Minister of Finance Regulation, however, there is also a number of lists of VAT payable that is not to be covered by the Indonesian government, such as services provided outside the ticket purchase period and flight period.