The government risks curbing houses and luxury vehicles sales as it slaps an additional 5 percent tax on purchases of high-end vehicles and homes in its latest effort to increase tax revenue. (Antara Photo/Zabur Karuru)

Indonesia Risks Killing 'Golden Goose' With 5% Super Luxury Tax


MAY 08, 2015

Jakarta. Indonesia’s government risks curbing sales of houses and luxury vehicles as it slaps an additional 5 percent income tax on an expanded list of high-end homes and cars in the state’s latest effort to increase tax revenue.

Finance Minister Bambang Brodjonegoro revised a ministerial decree on April 30 that lowered standards for “super luxurious goods”, which in turn would allow it to tax more on consumer purchases of airplanes, helicopters, yachts, motorcycles, cars, apartments and houses.

The new regulation, which will go into effect on May 30, imposes the additional tax on the sale of a house with selling price at more than Rp 5 billion ($385,000) or with a building area exceeding 400 square meters. A buyer of an apartment unit with the same price tag or building area of more than 150 square meters also needs to pay the additional tax. The previous price threshold for either a house or an apartment was Rp 10 billion.

Five percent on a Rp 5 billion home means paying Rp 250 million for the additional tax.

The government also slapped the additional 5 percent tax on sales of 10-seater vehicles with selling price at more than Rp 2 billion or with a 3,000 cubic-centimeter engine cylinder capacity, and on motorcycles with selling price of more than Rp 300 million or with an engine cylinder capacity exceeding 250 cubic centimeters.

The new regulation defined all airplanes, helicopters and yachts as super luxurious goods, while the previous decree only included aircraft valued at more than Rp 20 billion and yachts at more than Rp 10 billion.

Still, some business executives and analysts warned that the new regulation could “backfire” as it may curb sales and in turn lead to the government with lower tax revenue.

“Overall the amount of transactions will be lower in the housing market,” said Anton Sitorus, head of research at the Jakarta office of international property consultant Savills PCI on Friday.

Anton described the new threshold for housing luxury prices as “half-baked” because valuations of Rp 5 billion for houses or apartments are now common in big cities like Jakarta, following years of rising property prices. Those dwellings, he said, are “barely even luxurious, let alone very luxurious.”

“Some houses in Tebet and Lebak Bulus in South Jakarta, or Rawamangun in East Jakarta are worth Rp 5 billion. These are decent houses, their location make them worth that much,” Anton said.

The additional tax could lead to more potential homeowners in postponing purchases, Anton said.

'Killing the golden goose?'

Liliana S. Bambang, an analyst at Mandiri Sekuritas, shares the same point of view as Anton, saying that the tax will limit property developers from introducing new high-end houses to the primary market, while at the same time discourage transactions in the second-hand housing market.

“Killing the golden goose? The property sector has slowed even after Bank Indonesia cut the rate a while ago,” said Liliana in a research note on Friday, referring to the central bank’s benchmark interest rate, which was lowered by 25 basis points to 7.50 percent in February.

“By introducing a tougher tax regulation, it will slow both the property sector and the economy,” Liliana said in the research note.

The government on Tuesday reported that gross domestic product in the January-March period rose 4.7 percent, which was the slowest since the third quarter of 2009. Government officials have been quick to say soon afterward that they would fast-track state spending on infrastructure projects in a bid to boost economic growth.

Denon Prawiraatmadja, president director of Whitesky Aviation, an aviation company that specializes in non-chartered flights, said that the new regulation would encourage private jet and helicopter owners to buy airplanes and register them abroad, undermining the government’s intention to get more income from taxes on the purchases.

“Once they register it outside Indonesia, they don’t even have to pay any tax. The tax here is too expensive in Indonesia, even for them,” said Denon, who is also the chairman for non-scheduled flights at the Indonesian National Air Carriers Association (INACA).

The government is imposing the 5 percent tax on super luxury goods purchases, which is being referred to as the super luxury tax, as a way for the wealthy to pay taxes. Indonesia’s highest annual personal income tax is set at 30 percent, or six times the lowest tax rate, for those whose income exceeds Rp 500 million.

Wealthy taxpayers would need to pay the additional 5 percent tax on top of the 10 percent value-added tax and luxury sales tax (PPnBM) of 10 percent to 125 percent, depending on the type of good being purchased — which ranges from iPhones to Lamborghinis.

“This regulation would not hurt the rich as much as they hurt the middle-income class who often buy property using loans,” said Yustinus Prastowo, the executive director of Center for Indonesia Taxation Analysis.

“It is problematic, in term of fairness, as those who are not super rich have to pay the super luxury tax,” he said.

The government faces a fiscal shortfall even as it reduced fuel subsidies in order to reduce costs. President Joko Widodo’s administration has set a budget deficit target at 1.9 percent this year, a scenario in which the government sees tax collections increasing by 30 percent.

Indonesia’s tax revenue collection fell short of the government’s target in the January-April period. The government received Rp 310.1 trillion in the first four months, or 24 percent of its target for the entire year, the Finance Ministry’s tax office said in a statement on its website on Wednesday. Still, that four-month tax collection was 1.3 percent lower than in the same period of 2014.