Start Date

28-11-1988 12:30 PM

End Date

28-11-1988 2:30 PM

Description

The property tax is the oldest and most widely collected tax in Indonesia. The tax dates back to the early 1600s and currently Indonesia has over 30 million registered tax-paying properties. As a revenue source, the property tax has been increasing annually in absolute terms. It has grown almost fivefold in the period from 1979 to 1988. In real terms, however, the average annual increase has only been about 4%. Property taxation in Indonesia has evolved through three major stages. During stage one (1600s-1940s), the property tax was viewed as a "land rent" paid to the colonial government. During stage two (1940s-1985), the tax switched from being a "land rent" paid to a colonial government to a tax on agricultural output Stage three began in 1986 with the introduction of a new land and building tax which is similar to the property tax in many other countries. The new property tax changes the tax base from an annual rental value to the capital value of land and buildings. The new law continues to give the valuation responsibility to the central government. The nominal rate is 0.5% of the capital value of all land and buildings. However, relatively low assessment ratios bring this down to an effective tax rate of about 0.1%. The new property tax law gives administrators less individual discretion for granting exemptions from the tax. The new law follows the pattern in place in most countries in that it exempts truly non-profit organization such as religious, cultural, educational, and public property. The clear identification of exemptions and the relative lack of individual discretion should discourage tax evasion and tax avoidance. Revenues from the new property tax are allocated as follows: about 65% to local government, 16% to the provincial government, 10% to the central government, and 9% to cover collection costs. Unlike the old system, the new Jaw does not stipulate how tax revenues should be used. Local governments can use tax revenues for either routine or development expenditures. Given the time, manpower, and budget constraints in Indonesia, the government's implementation strategy is very selective. Emphasis is being placed on the following principles and activities: 1. Attention is focused on the highest value properties within the urban sectors. 2. To achieve short-term revenue gains, attention is focused on a crash program to improve property tax coverage, the accuracy of valuations, and the efficiency of tax collection in the three major urban areas. 3. Long-term, attention is focused on improving both property tax policy development and property tax administration throughout the country. 4. The property tax has tremendous potential for generating important regional government revenue. .By improving the accuracy of property identification and registration, bringing the appraised property values closer to real market value, improving the collection efficiency and increasing the official assessment ratio, the tax revenue can be increased. For example, by having 95% of all properties registered accurately, having all properties valued at 90% of true market value, collecting 85% of all assessed taxes and increasing the official assessment ratio to 70%, total property tax revenues could be increased to more than ten times the present amount.

Publication Date

November 1988

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Nov 28th, 12:30 PM Nov 28th, 2:30 PM

Property taxation: The Indonesian experience

The property tax is the oldest and most widely collected tax in Indonesia. The tax dates back to the early 1600s and currently Indonesia has over 30 million registered tax-paying properties. As a revenue source, the property tax has been increasing annually in absolute terms. It has grown almost fivefold in the period from 1979 to 1988. In real terms, however, the average annual increase has only been about 4%. Property taxation in Indonesia has evolved through three major stages. During stage one (1600s-1940s), the property tax was viewed as a "land rent" paid to the colonial government. During stage two (1940s-1985), the tax switched from being a "land rent" paid to a colonial government to a tax on agricultural output Stage three began in 1986 with the introduction of a new land and building tax which is similar to the property tax in many other countries. The new property tax changes the tax base from an annual rental value to the capital value of land and buildings. The new law continues to give the valuation responsibility to the central government. The nominal rate is 0.5% of the capital value of all land and buildings. However, relatively low assessment ratios bring this down to an effective tax rate of about 0.1%. The new property tax law gives administrators less individual discretion for granting exemptions from the tax. The new law follows the pattern in place in most countries in that it exempts truly non-profit organization such as religious, cultural, educational, and public property. The clear identification of exemptions and the relative lack of individual discretion should discourage tax evasion and tax avoidance. Revenues from the new property tax are allocated as follows: about 65% to local government, 16% to the provincial government, 10% to the central government, and 9% to cover collection costs. Unlike the old system, the new Jaw does not stipulate how tax revenues should be used. Local governments can use tax revenues for either routine or development expenditures. Given the time, manpower, and budget constraints in Indonesia, the government's implementation strategy is very selective. Emphasis is being placed on the following principles and activities: 1. Attention is focused on the highest value properties within the urban sectors. 2. To achieve short-term revenue gains, attention is focused on a crash program to improve property tax coverage, the accuracy of valuations, and the efficiency of tax collection in the three major urban areas. 3. Long-term, attention is focused on improving both property tax policy development and property tax administration throughout the country. 4. The property tax has tremendous potential for generating important regional government revenue. .By improving the accuracy of property identification and registration, bringing the appraised property values closer to real market value, improving the collection efficiency and increasing the official assessment ratio, the tax revenue can be increased. For example, by having 95% of all properties registered accurately, having all properties valued at 90% of true market value, collecting 85% of all assessed taxes and increasing the official assessment ratio to 70%, total property tax revenues could be increased to more than ten times the present amount.