24 January 2020 (closed)
USD/IDR (13,634) -13.01 -0.10%
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Jakarta Composite Index (6,244.11) -5.10 -0.08%
The Indonesian government has revised its luxury goods tax policy (in Indonesia known as PPnBM) for (luxury) property. Previously, apartments with a selling price of at least IDR 10 billion (approx. USD $700,000) and houses with a selling price of at least IDR 20 billion (approx. USD $1.4 million) were subject to a 20 percent luxury goods tax. The latest revision has now raised the minimum price of the property to IDR 30 billion (approx. USD $2.1 million) for all types of property.
Thus, in other words, when you buy property in Indonesia (for example a house, an apartment, a town houses, or a condominium) you will now be subject to a 20 percent luxury goods tax rate if the price of the property exceeds IDR 30 billion (however, those who are familiar with Indonesia will know that it is very difficult to find property that is priced over IDR 30 billion).
The decision to raise the minimum price level aims at boosting Indonesia's luxury property sector. Although the market for luxury property is already small in Southeast Asia's largest economy (and Indonesia's whole property sector has been subdued after 2013), the luxury goods tax made matters worse after it was introduced in Indonesia's property sector in 2017 as developers became reluctant to invest in luxury property projects.
Through Finance Ministry Regulation No.86/PMK.010/2019 on the Amendment of Finance Ministry Regulation No.35/PMK.010/2017 on the Types of Taxable Goods Classified as Luxury Items other than Motorized Vehicles Subject to Sales Tax on Luxury Goods the central government has raised the minimum price level for all property categories to IDR 30 billion.
Besides the minimum value, the other major revision involves the property categories; the 2017 luxury tax regulation divided property into (1) houses and townhouses [non-strata title] and (2) apartments, condominiums, and townhouses [strata title]. Category (1) was subject to a 20 percent luxury goods tax rate if the price exceeded IDR 20 billion, while category (2) was subject to a 20 percent luxury goods tax if the price of the property exceeded IDR 10 billion. The amendment has now merged these two categories.
Robert Pakpahan, Director General of Taxation, said the revision will not impact negatively on government tax revenue. Although per sale the amount of tax revenue will be lower, it is assumed that more sales will result into higher tax revenue from the property sector.
Ignez Kemalawarta, Deputy General Chairman of Real Estate Indonesia (REI), said the luxury property market of Indonesia has been sluggish since 2017 - when the Indonesian government introduced the 20 percent luxury tax for luxury properties in an effort to curb upward spiraling prices - as developers have been focusing on projects that come under the luxury tax threshold. He therefore expects to see a boost in the high-end market due to the revision.
Ferry Salanto, Senior Associate Director at Colliers Indonesia, said the market for property above IDR 10 billion is actually very small, possibly constituting only around 3 percent of the total property market in Jakarta. He therefore thinks the revision will not have a significant impact on Indonesia's property sector. The positive message is that the government shows its commitment to improve conditions in the property sector. Salanto added that lower mortgage rates would make a much bigger impact.
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