What is the Property Tax in Indonesia?
Indonesia introduced property tax in 2009. The government implemented it to replace the land and building tax (BBN). The property tax is a local tax imposed on owners of buildings or land.
How to Calculate Property Tax
The rate of property tax varies across regions. It is based on the assessment value of the property.
This value is determined by appraisers, who base their decisions on the price of similar properties in the area.
Generally, a building’s taxable value is calculated by multiplying its floor area with the applicable rate per square meter for that region. The regional governments set the appropriate rate.
Its amount varies from locality to locality, depending on the building or land and its condition. For instance, Bogor (West Java) charges new houses Rp2 million/m2, while old houses will be set at Rp3 million/m2.
However, in Bandung (West Java), old houses will be charged Rp3 million/m2 while new homes will only pay Rp2 million/m2. The rates also differ across different regions and districts in Indonesia.
Property owners need to pay taxes based on their assessment values within 30 days after receiving notice from tax officials or local governments. Failure to do so within this time frame might result in late charges.
Additional Tax Interest
In addition, taxpayers might have to pay additional interest if they fail to pay taxes within 60 days after receiving notices. However, many taxpayers fail to pay taxes on time and are thus subject to late charges and penalties, and interest income for late payments.
This may explain why many people are yet to receive official tax notices from local governments or BPPN despite having paid BBN at least once during their lifetimes under the previous system.
Some taxpayers have even received more than one notice from different municipalities for unpaid BBN despite paying all due amounts.
This shows that there might be some discrepancies between BBN data and actual assessments along transmission channels between BPPN and local government agencies responsible for producing official notices.
However, you should note that such discrepancies may not necessarily lead to adverse outcomes for taxpayers since late payment charges cannot exceed 25% of total assessed values unless explicitly stated otherwise by law.
Indonesia’s Tax System
As mentioned above, Indonesia introduced property tax in 2009 to improve tax administration and increase tax revenue from the real estate sector.
The introduction of property tax is part of a broader reform in Indonesia’s tax system, which has been undergoing since the beginning of the reform era in 1999.
Tax-Based Fiscal and Value-Based Fiscal System
Before introducing property tax, Indonesia’s tax system was based on a tax-based fiscal system. Tax-based fiscal system means that income taxes are levied on all types of income (apart from dividends and inheritances), including capital gains.
However, such a system resulted in high tax evasion and corruption levels. In addition, it created problems for taxpayers in making correct assessments and complying with their tax obligations.
Thus, the government switched to a value-based fiscal system by implementing a comprehensive direct taxation policy known as “Pajak Bersih” (clean taxation).
Clean Taxation Policy
In 2009, the government introduced the clean taxation policy to improve tax administration and increase revenue from capital gains and property taxes.
Under this policy, Indonesia replaced its previous income-tax-based fiscal system with a value-based one that relied mainly on property taxes or real estate taxes.
Why Taxpayers Do Not Pay Tax On Time?
Many taxpayers do not pay their property taxes on time for several reasons, including the lack of information about actual assessments and mismanagement of BPPNs.
It makes it difficult for taxpayers to make correct assessments when they receive notice about their actual values by tax officials or local governments. That’s why the government created eBPN to help taxpayers do this).
This is why many people are yet to receive official tax notices from the local government despite having paid BBN at least once during their lifetimes under the previous system.
Some taxpayers have even received more than one notice from different municipalities for unpaid BBN despite paying all amounts due under the BBN regime. For example, those who had paid BBN twice during their lifetime.
This shows that there might be some discrepancies between BBN data and actual assessments at some point along transmission channels between BPPN and local government agencies responsible for producing official notices.
However, you should note that discrepancies in taxable property assessments will not cause negative consequences for taxpayers. Late payment charges cannot exceed 25% of assessed values as long as taxpayers are able to comply with the law once they have received their official notice.
What are the penalties?
The number of penalties varies across regions or districts. For instance, in Yogyakarta (East Java), taxpayers who fail to pay taxes within 60 days after receiving notice will face a penalty of Rp100,000/m2 (or 25% of total assessment value if the taxpayer has already paid the entire amount due).
In Jakarta (West Java), on the other hand, taxpayers who fail to pay taxes within 60 days after receiving notice will face a penalty of Rp50,000/m2 (or 25% of total assessment value if the taxpayer has already paid the entire amount due).
Retrospective property tax
One of the downsides of Indonesia’s property tax is that it is applied retrospectively. This means that taxpayers who did not pay tax in the past will be subjected to retroactive taxes.
For instance, those who have not paid income tax or BBN in their lifetimes but have been owning a house or land since they were young will be subjected to property tax according to the law.
In the new property tax regime, all taxpayers who have enjoyed tax exemptions must pay taxes retroactively on the value of their property.
We expect that all taxpayers who have been paying BBN before 2009 will receive retrospective treatment, and for those who have not paid it in their lifetime, it seems mandatory they start paying it from 2009.
There has not been a clear explanation as to why this has happened since the new system started in 2009.
It is difficult for ordinary people to understand how much property tax they should pay based on actual assessments if they have not paid taxes for several years due to a lack of information or awareness.
Therefore, it is difficult to say whether the new property tax system in Indonesia has been a success. There are no clear indicators of taxpayers understanding the system and complying it.
The following are some of the most common exemptions:
1. Taxpayers whose properties have a value below IDR 1 million. They only need to pay IDR 500 per year.
This will come after an annual payment of IDR 500 for every million above that amount. The maximum tax payable under this exemption can be up to IDR 8 million per year. For example, if the property has a value of more than 9 million); or
2. Taxpayers whose houses do not have a designated living room/living area and do not use said home for commercial purposes. The living room area must cover at least 20% of the total floor area. A living room/living area must include facilities such as a kitchen, bathroom, and toilet;
3. Residents with houses below IDR 1 billion;
4. Residents who live in houses that they own but do not use them for commercial purposes;
5. Residents who live in houses that they own but do not use them for themselves (e.g., for renting or leasing);
6. Residents who live in penginapan (i.e., rooms offered for rent);
7. Employees who live in housing provided by their employer;
8. Taxpayers who live in their parents’ house;
9. Taxpayers whose property has been assessed as below IDR 100 billion