Indonesia Allocates Rp 722 Billion to Cover VAT on Year-End Domestic Airfares
Indonesia plans to pay the value-added tax on eligible domestic economy-class airfares for the 2026/2027 Christmas and New Year holidays, setting aside Rp 722 billion ($39.9 million). The government expects about 3.7 million passengers to benefit.
Eligible tickets and potential savings
Travelers must buy their tickets from Oct. 20, 2026, through Jan. 10, 2027, and fly between Dec. 22, 2026, and Jan. 10, 2027. For qualifying scheduled domestic economy flights, the government will cover all VAT charged on the base fare and fuel surcharge.
The relief does not eliminate the full ticket price or cover VAT on optional services such as excess baggage and seat selection, according to Aktualita.co.
A government simulation reported by Aktualita.co uses a ticket with a Rp 790,000 base fare and a Rp 121,600 fuel surcharge. Its total price before relief is Rp 1,136,756, including Rp 100,276 in eligible VAT. With that tax paid by the government, the passenger would pay Rp 1,036,480, assuming all other price components stay the same.
Finance Minister Regulation No. 77 of 2026 establishes the measure. Finance Minister Suahasil Nazara signed the regulation, which was promulgated on Oct. 20, 2026, Tempo reported. The relief is recorded as a tax expenditure earmarked in the 2027 State Budget, known as the APBN, and applies to the 2027 fiscal year.
Holiday support and earlier tax relief
The airfare measure accompanies a broader effort to support household purchasing power. Speaking after an Oct. 21 cabinet meeting at the presidential palace in Jakarta, Chief Economic Affairs Minister Airlangga Hartarto said roughly Rp 31.8 trillion had been prepared for year-end measures, including food assistance, wage subsidies and travel discounts, according to Antara. The government expects the stimulus to help maintain consumer spending amid global economic uncertainty.
Transport Minister Dudy Purwagandhi said the holiday discounts aim to lower travel costs and support transportation, tourism and economic activity during the peak season. Rail passengers will receive a 30% fare discount from Dec. 22 to Jan. 4. Passenger ships will offer a 30% reduction in base fares from Dec. 17 to Jan. 10, while ferry passengers will have port service charges waived from Dec. 22 to Jan. 10. Those measures have Rp 161.4 billion in combined funding and a target of 2.8 million passengers, Dudy said.
Tempo also places the Rp 722 billion airfare incentive within a Rp 7.8 trillion package for the second half of 2026 that Airlangga unveiled on May 26. That package includes transportation discounts and tax incentives for the school-holiday and Christmas/New Year periods, income-tax relief on writers' royalties, and national internship and vocational programs.
The government used the same VAT mechanism for Eid al-Fitr earlier in 2026. Finance Minister Regulation No. 4 of 2026, released Feb. 6, applied to tickets purchased from Feb. 10 through March 29 for flights from March 14 through 29. According to Tempo, the Eid transport-discount package totaled Rp 911 billion and was projected to reduce domestic economy airfares by 17% to 18% for 3.3 million passengers.
A comparable program covering all VAT on domestic economy tickets ran during the June 24-July 5, 2026, school holidays. Its budget was about Rp 472.7 billion, with a projected reach of 2.3 million passengers.
Airport discounts and AirAsia offers
Indonesia AirAsia estimates that domestic ticket prices could drop by at least 12% over the year-end holidays through the combination of VAT relief and a 50% discount on passenger service charges, or PSC, which pay for airport passenger services.
The PSC discount comes from InJourney Airports, formally PT Angkasa Pura Indonesia. Its president director, Mohammad Rizal Pahlevi, told Antara that the operator also discounts landing, parking and storage service fees, known as PJP4U, by 50%. During some periods, it waives landing fees altogether to encourage traffic.
Separately from the domestic tax relief, Indonesia AirAsia has launched its "All Seats, All Flights" promotion, offering discounts of up to 30% on base fares for selected international routes. Bookings run from Oct. 19 through 25, 2026, for travel from Nov. 2, 2026, through Sept. 30, 2027. Destinations covered include Kuala Lumpur, Penang, Johor Bahru, Perth, Xi'an, Seoul and Sapporo, according to Aktualita.co.
Concerns over airport revenue and fare limits
Aviation analyst Gerry Soejatman cautioned that the PSC discount could weaken airport operators' finances. Halving that revenue during the busiest travel period, he said, reduces income when operators would normally look to higher passenger numbers to lift earnings.
"The impact could extend beyond passenger services to non-aeronautical revenue, including parking fees and rental income from shops and offices," he told Investor Daily.
Gerry favors adjusting the government's ceiling on domestic airfares as a more sustainable way to help airlines. He said the limit, introduced in 2010, has failed to keep pace with inflation.
In his assessment, the ceiling restricts airlines' ability to pass along increased operating costs and may deter them from expanding capacity in both busy and quieter periods. He said that can leave fewer seats available during holiday peaks and keep tickets relatively expensive outside those peaks.