Indonesian Government Wants more Tax out of Property Sector in 2014
Business players in Indonesia's property sector are not happy with the government's intention to collect more tax from the sector in 2014 and onwards. The property sector has been one of the fastest growing sectors in Indonesia's economy in recent years as demand for property has surged significantly among Indonesia's expanding middle class, resulting in massive profit numbers for Indonesian property companies. Meanwhile, the government of Indonesia has been busy taking efforts to increase tax revenues.
Indonesian property players claim that tax collection in the sector is already quite high, thus if the government tries to collect even more tax it will hurt the country's booming property sector. Currently, income tax, value-added tax, and other taxes already stand at 35 percent in the property sector. With a ratio of tax revenue to gross domestic product (GDP) of only about 12.3 percent, it is understandable that the government wants to increase tax revenues. However, analysts believe that accomplishing a higher ratio should not be done by simply raising taxes but through optimizing the current ongoing tax administration reform in order to improve tax compliance and auditing. The tax to GDP ratio of Indonesia is currently one of the lowest worldwide. Developed countries (such as the United States, United Kingdom, Germany and France) have a tax to GDP ratio ranging between 25 and 45 percent.
Anton Sitorus, Head of Research for Jones Lang LaSalle in Indonesia, wrote on the Jones Lang LaSalle blog on 20 August 2013 that Bank Indonesia is expected to further tighten the loan-to-value (LTV) ratio for bank loans for second and subsequent residential property purchases, after the institution had introduced a maximum 70 percent LTV ratio for bank loans for first home ownership in September 2012. These policy changes were introduced to tackle the issue of rapid price hikes by irrational moves from speculative investors.
Indonesia's property posted impressive results in 2012. On average, net profit of Indonesian property companies grew 68 percent during the year. Of the 45 property companies that are listed on the Indonesia Stock Exchange (IDX), 26 posted net profit growth that exceeded 50 percent.