Jakarta. The government has released a new regulation that will provide tax incentives for first-time home buyers in a bid to spur growth in the domestic property sector, a tax official told the Jakarta Globe on Thursday.
According to Mekar Satria Utama, director of counselling, service and public relations at the Finance Ministry's tax directorate general, the regulation will allow Indonesians with a maximum income of Rp 7 million ($503.41) a month to enjoy a subsidized lending rate in purchasing their first home under a scheme called FLPP.
The scheme was previously only available to those earning up to Rp 4.5 million a month.
The ministry hopes that lower monthly installments will encourage more middle-class families to buy their own homes and in turn help boost the property sector.
"The regulation is meant to support government's program to build low-cost housing," Mekar Satria told the Jakarta Globe.
The new regulation will also scrap the current 10 percent value added tax (VAT) for homes worth up to Rp 250 million.
The facility was previously only applicable to houses costing up to Rp 144 million.
Mekar Satria said the tax office is aware the policy may decrease revenue from VAT, but the government has carefully calculated its impact and decided it will ultimately lead to greater economic development.
"Yes, there would be a slightly lower revenue from VAT, but it is more important to support the government's program for low-cost housing," he said.
Indonesia aims to collect Rp 1,546.66 trillion from various taxes this year, including customs and excise. Revenue from VAT and sales tax on luxurious goods is expected to reach Rp 571.73 trillion.
In 2015, the government managed to collect Rp 1,240.8 trillion in tax revenue.
VAT and sales tax on luxurious goods made up 73.46 percent of the country's tax target last year, or Rp 423.5 trillion. The government's initial target for both taxes was Rp 576.5 trillion.
Yustinus Prastowo, executive director of a non-governmental tax watchdog called Center for Indonesia Taxation Analysis (CITA), welcomed the new scheme for first-time home buyers, but urged the government to find a way to compensate for the potential loss in tax revenue.
He suggested the possibility of applying tax to more items that can be charged with VAT and increase revenue from the income tax of large companies.