TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Property: Property ownership by foreigners a tax revenue boon
Prime location: Jakarta is still one of the hottest property markets in Southeast Asia, with locals and foreigners sizing up the opportunities for property products
Change Size
P
span class="inline inline-center">Prime location: Jakarta is still one of the hottest property markets in Southeast Asia, with locals and foreigners sizing up the opportunities for property products. Sanko/Wikimedia
The government is reviewing regulations on property taxes, which have drawn strong reactions from developers, market analysts and economists.
Foreign property ownership would be a potential source of state revenue, with many foreigners, including expatriates, interested in owning property, according to the Indonesian Real Estate Association (REI).
The REI has advised the government to issue a policy setting the minimum property transaction for a unit of property that foreigners could be allowed to buy and imposing higher taxes on foreign purchasers, including expatriates.
Citing an example of gaining greater tax revenue from the segment, it said that with the sale of 10,000 units with each unit priced at Rp 5 billion (US$389,000), the potential taxes that the government could obtain would be 40 percent of the transaction value or around Rp 20 trillion.
The 40 percent taxes comprise value-added tax of 10 percent, income tax of 5 percent, luxury tax of 20 percent and property transfer fees of 5 percent.
The REI was speaking about the possible tax revenue increase that the government is striving to gain from the property sector following a report on the government's plan to boost tax revenue from the property sector.
REI also advised the government to accommodate transactions of real estate investment trusts (REITs). The policy was aimed at attracting investors and inviting fresh funds, which would eventually increase property tax revenues significantly.
'REITs will enable the property sector to grow significantly and thus will contribute tax revenue to the state,' it said.
Currently, a REIT in Indonesia cannot be implemented fully because of the absence of a regulation governing a mechanism on tax imposition for business players in the REIT market.
According to the REI, the government could also get potential tax from a tax amnesty (sunset policy), which would drive capital inflow. 'This policy would have a positive impact [on the Indonesian economy] because capital inflow would enter the Indonesian financial system,' the association said.
Earlier, property developers, capital market analysts and specialists in economic issues hailed the government's efforts to meet its revenue target in 2015 but expressed concern over the planned revisions in property tax.
The government through the Finance Ministry's directorate general of taxes is currently reviewing revisions of the luxury goods tax by reducing the threshold on income tax on property, as enshrined in Article 22 of Law
no. 36/2008, from Rp 10 billion to Rp 2 billion.
Counterproductive
President of PT Ciputra Surya, Harun Hajadi said if the revisions to property tax were approved, the price of property would go up as a property valued above Rp 2 billion would be subject to 5 percent income tax on the selling price, aside from VAT and luxury goods tax.
'The impact will not be good for the property market due to the rising cost of purchasing a property. I think this is counterproductive. Previously luxury goods tax was imposed on a property valued above Rp 10 billion. However, now it will be imposed not on higher value property, but on those with values of Rp 2 billion and above,' said Harun.
The REI supports the government's efforts to boost tax revenues but changes in the policy should be made based on wise consideration and reality and the public financial capability and, above all, avoiding damage to the property sector, the association said.
REI central board honorary chairman Teguh Satria told the media earlier that the government's plan to revise the regulation on property tax would make it hard for people to purchase a home because the government would include properties valued above Rp 2 billion as products subject to luxury goods tax. If the regulation is revised, middle-level apartment units would fall into the luxury goods category.
'For example, take an apartment unit worth Rp 2 billion with an area of 150 square meters, the price for one square meter would be Rp 13 million,' said Teguh.
At present it was already quite difficult to find an apartment at a price of Rp 13 million per square meter in Jakarta, he argued.
Teguh said today's market value already exceeded Rp 20 million per square meter. 'This means anyone buying an apartment is subject to the sales tax on luxury goods,' Teguh explained.
At the same time the government is pushing people in urban areas to live vertically, as the price of houses continues to skyrocket. In Bekasi, a house selling for Rp 2 billion would not fall into a luxury house category, he said.
Lydia Suwandi, vice president of research at RHB OSK Securities Indonesia warned that the implementation of the revised regulation on income tax and luxury goods tax on property would disrupt the growth of the property sector.
'A Rp 2 billion property can definitely not be categorized as a luxury property. Assume if the threshold price is Rp 2 billion, then the initial expense that buyers will have to pay is 45 percent [30 percent for down payment, 5 percent for land and building transfer duty, 10 percent VAT]' she said.
'Additional tax would hurt both demand and supply,' she added.
She said that if the tax turned out to target the wrong segments, the government would not get what they aimed for ' higher tax revenues. 'We know that progress in the government is slow, the tax revenue in the first quarter of 2015 is also the worst, this tax revision will not make things better,' she said.
According to Aviliani, a specialist in economic issues, the government's plan to reduce the thresholds on luxury goods taxwould not be in the country's best interest.
Purchasers, she said, would opt to buy property abroad, leading to lower revenues and reduced tax income. The revision plan is aimed to meet the tax revenue target in 2015, which has been raised to Rp 1.5 quadrillion.
'The regulation is not an effective means to achieve the state revenue targets,' said Aviliani. (JP)
