Indonesia Showers Property Buyers With Waivers to Spur Economy

(Bloomberg) -- Indonesia slashed income tax on the sale of luxury properties in the latest bid to spark a revival in its stagnant property sector and support growth in Southeast Asia’s largest economy.

The tax on income from sales of luxury houses and condominiums priced at 30 billion rupiah ($2.1 million) or more was reduced to 1% from 5%, according to a statement issued by the Cabinet Secretariat Tuesday. The threshold for the application of the lower tax, effective from June 19, was raised from 10 billion rupiah previously, it said.

Key Insights

• President Joko Widodo is seeking to stimulate the property sector in the hope of the industry’s multipliers effect on sub-sectors such as cement, ceramics, electronics and furniture helping overall economic growth.
• The government is extending tax breaks to the luxury property segment as it has seen sluggish sales in the past five years. Growth in the overall property sector eased to 3.58% last year from 3.68% in 2017, according to data from statistics bureau.
• As the mass-housing market makes up a large part of the industry, the government has also waived value-added tax up to a certain value for those properties.
• The series of tax incentives for housing shows the government is complementing earlier moves by Bank Indonesia to relax the loan-to-value ratio for home-buyers, according to PT Bank Central Asia Chief Economist David Sumual. The measures may help property sector expand in the short term, he said.

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• The government earlier this month made it cheaper to purchase expensive houses by raising the luxury tax threshold limit. The luxury levy of 20% now applies only to properties valued at 30 billion rupiah.
• Authorities have also fast-tracked the process of validating income tax in property sales to 3 days from 15 days earlier.
• The income tax on sales of luxury cars, motorcycles, private aircraft and yachts will remain at 5%, according to a Finance Ministry notification. The rate will apply on cars priced at more than 2 billion rupiah and motorcycles valued at more than 300 million rupiah.

To contact the reporter on this story: Tassia Sipahutar in Jakarta at ssipahutar@bloomberg.net

To contact the editors responsible for this story: Thomas Kutty Abraham at tabraham4@bloomberg.net, Karlis Salna

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