Indonesia to pay less for joint fighter jet after South Korea tax exemption

Indonesia will be exempt from paying value-added tax on its portion of a joint fighter jet development project, South Korea’s defence procurement agency said on Monday, saving Jakarta around 100 billion won (US$84.85 million).

Under revised calculations, Indonesia’s will have to pay 1.6 trillion won (US$1.35 billion) of the 8.1 trillion-won project, an official with South Korea’s Defense Acquisition Program Administration (Dapa) told reporters.

Classifying the fighter jets as defence goods exempts them from value-added taxes and lowered overall costs of the programme by 500 billion won, the official said.

“We’ve pushed for the designation since 2014… and belatedly received approval, which resulted in the saving of 500 billion won of total expenses,” the official said.

The next-generation KF-21 fighter jet developed by Korea Aerospace Industries (KAI) in a project partially backed by Indonesia is designed to be a cheaper, less-stealthy alternative to the US-built F-35, on which South Korea relies.

In 2018 Indonesia sought to renegotiate to take pressure off its foreign exchange reserves and later offered to pay its share of the cost in the form of a barter.

The two sides agreed last week that Indonesia would keep its pledge to shoulder 20% of the development cost, including making in-kind payments for 30% of its share, Dapa said in a statement at the time.

The official on Monday said that agreement stands.

KAI said last month the KF-21 is on track to meet its deadlines. Ground testing is being conducted this year, with first flights expected in 2022.