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NEWS UPDATES Asean Affairs   11  December 2010

Tax switch may cost Indonesia lost revenue

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Local Indonesian governments and taxpayers could face headaches next year once the national government passes its duties in transferring land and building rights to the regions.

In less than a month, districts and cities will start levying taxes under the 2009 Regional Tax and Retribution law (PDRD). The devolution is part of a regional autonomy law passed 10 years ago.

However, people may encounter difficulty selling or buying property as 490 out of 540 municipalities or regencies have not yet prepared their own laws on the transfer of land and building rights, known as BPHTB. That responsibility was previously the national government's.

"I am worried that notaries will refuse to legalize land or house transfers because the buyer cannot provide BPHTB," Finance Minister Agus Martowardojo said on Friday.

He estimated the transfer of power would cost the national government approximately Rp 7 trillion ($777 million) in tax revenue. "So if the central government cannot levy it and the regions do not levy it, that potential revenue would be lost."

Pestamen Situmorang, head of the tax assessment division at the Directorate General of Taxation, said districts and cities must have regulations in place concerning BPHTB by Jan. 1 "to avoid a regulatory vacuum."

"By that time, the old BPHTB law will not apply anymore. If there is no regional regulation to replace it, then the buyers won't have to pay a dime," he said.

Taxpayers in regions with regulations in place will likely face lower fees for BPHTB. Pestamen said Jakarta, Surabaya, Sidoarjo and Magetan were among the regions with laws already in place.

The new law caps BPHTB at 5 percent, whereas the current law has 5 percent as the minimum value. The new law also sets the non-taxable minimum value at Rp 60 million if the property was purchased or Rp 300 million if was a grant or inheritance.

"This means regional governments cannot increase the tax rate. In fact, they will likely tweak those values, resulting a lower rate, in order to get more support from their voters," said Hartoyo, director of tax extension and assessment at the Directorate General of Taxation.

"So if you want to buy a house, maybe you should consider waiting until next year."

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