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JAKARTA. Those who have investment portfolio in the form of lands should be alert. Likewise, those who want to acquire vacant lands also no need to be rush in expanding the land investments.
That is because the government is arranging new tax rules in the land sector. The future regulation is part of the program of President Joko Widodo in terms of equitable economy. According to the Coordinating Minister of Economic Affairs Darmin Nasution, this policy has three pillars, namely land-based policy, opportunity-based policy, and human resources improvement-based policy.
In terms of land sector, the government is planning to impose progressive tax on the ownership of idle land in a significant number. The government argues, public have increasingly invested in land. However, instead of generating profits through productive activities over the land, they merely expect for the land price rise to reap profits.
According to the Minister of Agrarian and Spatial Sofyan Djalil, the speculation has been more massive within the recent ten years. Not surprisingly, the inflation rate in the land sector during the period in average increases 18% per year so that the land price continuously increases.
Indeed, people who need house or land for productive purposes suffer from this condition. The increasing price make many people struggle to own land.
Industries, which need lands for expanding their business also, have to spend more investment costs. Likewise, the government that needs a large amount of land for infrastructure projects is also bothered by this kind of speculation. In this case, the speculators will acquire a plot of land as they know that the government will develop an infrastructure project in that area.
However, to date the government still has no clear definition on the ‘idle land’. The government also has not yet specified the technical matters of the scheme at practical level. The government also has just elaborated the scenario of tax rate, without elaborating the specific rate of the future progressive tax.
The uncertainties have led to unease in property sector. Understandably, the developers control a significant number of the land ownerships in this country. This kind of land ownership is also known as landbank. By having the landbank, the developers may utilize the lands for their business purposes in the future.
Thus, the developers denied the definition of ‘idle land’ for their landbanks. Hence, they rejected the government’s plan to impose additional taxes over this kind of land ownership.
The developers rejected the assumption that they have deliberately left the land idle. They also denied the assumption that the landbank is an object of speculation.
Property observer Ali Tranghanda estimates, the government may apply the progressive tax. However, the government should have clear criteria on ‘idle land’. “Actually, an area with a site plan can be categorized as productive land. However, the tax progressive may be applied if within the two year period the developer has not yet started the construction,” Ali suggests.
The government has responded to the developers’ rejection. Sofyan promised that the property and industrial zone investors will be exempted from the progressive tax.
However, the interesting point is that not all developers agree with the government plan to exclude property and industrial zone investors from the progressive tax.
The minor developers, which are the members of the Indonesian Housing and Residential Developers Association (Apersi), even agree with the government’s plan to impose progressive tax on the landbank. “I will be happier if the developers are included in the progressive tax regulation,” said the Chairman of Apersi.
Despite of the polemics between the minor and major developers, the statement of Sofjan Djalil is apparently aiming at targeting individual land ownership.
The government offers some options of taxation over the profits of land transaction. For an example, three years ago you bought a plot of land with the price of Rp 200,000 per meter square. This year, the price of the land has increased to the price of Rp 1 million per meter square. In this case, if you sell the land with the current price, the price’s difference of Rp 800,000 per meter square will be subject to the progressive tax.
The government is still arranging the rate of the progressive tax. However, the essential point is that the more profits you make, the higher tax you have to pay.
However, taxation observer Bawono Kristiaji estimates that the capital gain tax will have complicated administrative procedures. Furthermore, this policy is not easy to be monitored. Not surprisingly, recently the government is still applying final income tax over land or property. “The burden of capital gain tax is potentially to be passed on to the consumers. (Therefore) the government may fail to achieve the target to control the prices,” he said.
Thus, Bawono suggests the government to apply land value tax (LTV). Like the scheme of land and building tax (PBB), the LTV has a flat tariff. However, those two kinds of taxation systems would have different schemes of tax base. In this case, the LTV rate will be calculated merely based on the value of the land asset, no matter with the value of the building on the land, or the value of the land utilizations.
As illustration, there are two plots of land in an area: one plot of the land is left idle, while a commercial building is established on another plot of land. Those two plots of land are subject to the equal tax rate. Therefore, the owners of the unproductive lands will have a larger tax burden, as they will make no profit of the land. In this case, the owners of idle lands would have just made profits when the lands are being sold.
Bawono added, the tax scheme has been applied in 31 countries. He claimed, this scheme will be more efficient and effective in reducing land speculations. This taxation scheme is also more convenient in terms of administrative procedures.
But, the tax burdens will be equally severe, no matter the scheme.
(Muhammad Farid/Translator)
