Coordinating Minister for Economic Affairs, Airlangga Hartanto, announces a value-added tax facility for domestic airfares at a press conference on 25 April. (Coordinating Ministry for Economic Affairs)
Coordinating Minister for Economic Affairs, Airlangga Hartanto, held a press conference on 25 April to discuss the sustainability of the national airline industry amid rising aviation fuel costs. He noted that the administration has pledged to “guarantee affordable airfares and cap domestic fare increases at a maximum of 13%”.
This commitment is being carried out through the issuance of Minister of Finance Regulation No. 24 of 2026, which obliges the government to cover the value-added tax (VAT) on base fares and fuel surcharges for domestic economy class seats. The regulation will remain in effect for 60 days from the date of issuance.
To uphold accountability, air carriers are required to report their use of the VAT cut in accordance with applicable tax laws. Non-economy class flights remain subject to standard VAT rates, ensuring the policy is targeted to those who need it most.
This regulation follows earlier action taken by the Minister of Transportation on 6 April, which: (1) provided an 11% VAT borne by the government incentive for economy class airline tickets, with a budget of 1.3 trillion Indonesian rupiah (76 million US dollars) per month and (2) set a fuel surcharge cap at 38%.
Haryo Limanseto, spokesperson for the Coordinating Ministry for Economic Affairs, emphasised that such intervention is essential to mitigate rising ticket prices, given that fuel costs account for nearly 40% of an airline’s total operating expenses.
What does this mean for businesses?
The Middle East crisis has pushed governments to secure their energy supply in order to maintain domestic stability whilst sustaining public purchasing power. One of the most severely affected sectors is the airline industry. Aviation fuel is a non-subsidised commodity priced in line with global markets, which have risen by more than 80%since early April.
Inevitable price increases must therefore be addressed through fiscal intervention. For developing nations such as Indonesia—where the airline and tourism industries contribute nearly 4% of annual gross domestic product (GDP) and generate 19 million US dollars in foreign exchange earnings—the government must plan strategically to support the domestic economy. The newly issued regulation is one such measure. However, the fiscal buffer may prove difficult to sustain should the conflict be prolonged.
For investors and businesses, this signals a fleeting window of predictability. Policy support is in place for now, but long-term positioning should account for the risk of subsidy rollback if the geopolitical crisis persists.
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