Sofyan Djalil, Indonesian Minister of Agrarian Affairs and Spatial Planning, says the progressive tax on land that is deemed idle will not disturb the investment climate of Indonesia because industrial estates and land that has a clear development purpose are exempted from this tax (this includes land destined for property development projects). Through the progressive land tax the government wants to combat speculative land buying, something that has become a problematic phenomenon in Indonesia.
Usually when there are plans for a new government project in a certain area, people are eager to buy land on and around the targeted area (without having the intention to develop the land). As a result, the land acquisition process becomes a lengthy and costly one as the new landowners request high compensation. Through the progressive land tax, which was announced by the Indonesian government in January 2017 and is currently still being studied and discussed among several ministries), the government tries to curtail such speculative land buying that blocks infrastructure and property development in Indonesia. The tax is expected to be implemented later in 2017.
Speculative buying with the aim to push land prices higher is also a sensitive issue in Indonesia because it forms an obstacle to affordable housing development projects for the poor and lower class Indonesians. Especially in cities - where there exists a major backlog in housing units as well as scarcity of land - it is difficult to establish affordable housing when land prices have risen sharply. The Indonesian government earlier also announced it may introduce another strategy to combat speculative land buying (and enhance equality among the Indonesian population). It may impose a higher sales tax on land that is sold within a certain (short) time-frame to discourage people from buying and selling land with short periods.
However, people, businessmen and developers who own land or want to buy land with the serious intention to use the land productively (for example to build a business or house) objected to this new tax and said it would raise the cost of doing business in Indonesia. Therefore, the government announced the above-mentioned exemption.
Presently, Indonesia's regional governments impose an annual land and building tax on local residents with the tax rate ranging between 1-2 percent of the government-determined taxable value of the land. Meanwhile, an income tax of 2.5 percent is due at the time of selling the land.