T

he government will issue newly revised luxury tax (PPnBM) rules in early June in a bid to boost purchasing power and, at the same time, create possible new sources of tax revenue, a minister has said.

Several products that are currently charged will be exempted from the luxury tax '€” including certain electronics, furniture and accessory products '€” to spur purchases amid domestic economic slowdown and high inflation. Cars, motorcycles, yachts, aeroplanes, apartments and houses will still be categorized as luxury goods that are subject
to the tax.

However, the category of goods considered luxury will be lowered to Rp 5 billion from Rp 10 billion, requiring buyers to pay the 5 percent additional luxury tax that is deductible from their annual income tax.

'€œWe hope to complete the regulation in early June. The regulation will of course reduce tax revenues, but we will see only a Rp 1.5 trillion reduction in tax collection while creating better purchasing power,'€ Finance Minister Bambang Brodjonegoro told reporters on Friday.

Bambang said the regulation was expected to stimulate consumption to help boost economic growth since a number of luxury goods would be more affordable for a wider range of people.

Southeast Asia'€™s largest economy, which is primarily driven by domestic consumption, grew at the slowest pace since 2009 in the first quarter this year at 4.7 percent.

As for the impact on revenues, Bambang said taxes collected from the luxury segment remained a small proportion of the more than one quadrillion rupiah tax target aimed for this year.

As part of the tax revision, Bambang said the government would also continue reviewing its plan to allow foreign ownership of luxury apartments, allowing foreigners to buy apartments worth more than Rp 5 billion.

The Indonesian government currently does not permit foreigners to purchase property in Indonesia, although they may do so by using the name of an Indonesian citizen.

Foreigners are allowed to purchase strata title-type properties, which include '€œright to use'€ buildings only '€” excluding land '€” through the Building Ownership Certificate (SKBG) for a 25-year-period with the opportunity to extend.

Indonesian Real Estate Developers Association (REI) chairman Eddy Hussy said that his group had asked the Finance Ministry to postpone the additional 5 percent luxury tax for buyers of apartments worth more than Rp 5 billion, as the country'€™s property sector had been hit by the domestic economic slowdown.

'€œHowever, we support the government'€™s plan to allow foreign ownership of luxury apartments. We are also considering whether it would be better for the government to impose higher income tax and property transfer fees [BPHTB] on foreigners who buy apartments to secure [tax] revenues,'€ Eddy said.

Minister Bambang said REI'€™s plan to impose higher income taxes and BPHTB on foreign buyers of luxurious apartments would be complicated in its administration and morally questionable, while asserting that '€œthe luxury tax revision will not discriminate between foreigners and local buyers'€.

Luke Rowe, head of residential property at Jones Lang LaSalle (JLL), told The Jakarta Post via email that the domestic property industry would benefit if the government allowed foreign ownership of luxury apartments, despite the lack of confirmation from the Finance Ministry.

'€œAllowing foreigners to take mortgage finance for purchases of luxury apartments should also be considered, as this could lead to increased foreign demand,'€ Rowe said.