Indonesia to Waive VAT on New Homes to Spur Property Sales

(Bloomberg) -- Indonesia will waive value-added taxes on new home sales, its latest move to spur property investments and jumpstart economic activity.

The government will shoulder the VAT on new landed houses and apartments priced below 2 billion rupiah ($140,300), while VAT will be reduced by half for properties costing 2 billion to 5 billion rupiah, Finance Minister Sri Mulyani Indrawati said Monday. Buyers can use the perk for only one property, which can’t be resold for at least a year. The policy will be effective from March to August.

“The government, through this incentive, is encouraging household purchasing power and consumption, especially among the middle-class,” Indrawati said, adding that the central bank and Financial Services Authority also have loosened loan rules to allow 0% down payments for homes and vehicles.

Indonesia sees the credit crunch as one of the main obstacles it faces in exiting recession, with banks still slow to lend amid default fears and weak borrower demand. Authorities have rolled out various measures and cut interest rates to a record low, relaxed risk-assessment rules and offered debt relief to small borrowers.

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Southeast Asia’s largest economy has alloted about 5 trillion rupiah worth of tax incentives for the property sector, which makes up almost 14% of gross domestic product, and 2.99 trillion rupiah for the automotive sector. Despite the raft of new policies, the government still had to trim this year’s economic growth forecast to 4.5%-5.3%, while estimates for loan growth were lowered to 5%-7%.

The government, which aims to spend 58.5 trillion rupiah for business recovery programs this year, will also discuss support measures for the tourism sector. Foreign tourist arrivals dropped 89% in January amid border restrictions to curb the pandemic.

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