Angloinfo Text_ General Taxes in Indonesia

General Taxes in Indonesia

Overview

The general term for tax in Bahasa Indonesia is pajak. 

The information below is current as of this writing, but will no doubt change substantially in the next several years.  As discussed below, the recent decentralization of Indonesia’s governmental structure has long term effects on local governance which are just beginning to be instituted across the country.  Keep in mind that financial stability, government services and taxation varies significantly in urban versus rural areas.  This is also true when comparing one Indonesian province to another.  There are presently thirty-four Indonesian provinces.  The richest provinces benefit most from tax revenues due to natural resource extraction.

Ongoing efforts in decentralization will effect local tax laws in the future and will apply in various ways to both Indonesian citizens and foreign residents.

Apart from income tax, listed below are some of the more prominent taxes that account for the lion’s share of government revenues as derived from taxation.

CAR TAX & ROAD INSURANCE

The umbrella agency SAMSAT is the bureaucratic clearinghouse for all things related to cars and driving.  As detailed in the other AngloINFO Indonesian papers on driving laws, road accidents and driving licenses, car registration takes place at the SAMSAT offices.  This is also true for paying car and road taxes.

CAR TAXES

Taxation on cars are equally applied to citizens of Indonesia as well as foreign residents.  (As noted in the other AngloINFO Indonesian papers on driving and insurance: Only foreigners with residential status can own a car in their own name)

Cars are considered luxury items in Indonesia as only 20% of the population own one. One result of this is that car dealerships are forced to pay high duties on the vehicles they import.  This substantially drives up the price of a new car in Indonesia.

Another consequence is the effect car taxes have on expatriates who wish to import a car into Indonesia from abroad.  Indonesia custom rates range as high as 300% of the car’s value.  The only exceptions to this are in the case of foreign embassy and consulate staff.

VEHICLE REGISTRATION / TRANSFER of TITLE

There are two basic car taxes.  The first is the vehicle registration, or title transfer fee (Bea Balik Nama or BBN). This is a one-time tax as associated with transfer of title  and costs 10% of the sales price of the vehicle.  In the city of Jakarta, that figure can go as high as 20%.  This tax is not to be confused with any VAT, or value added tax, which would be additional. (see below for more details)

After change of ownership is processed, the owner is issued a title in their own name (the BPKB- or Buku Pemilik Kendaraan Bermotor). To change title, Indonesians show their national identity card (KTP), and foreigners their passport and residential visa (either KITAS or KITAP). 

Along with the BPKB, the owner is issued a STNK (Surat Tanda Nomor Kendaraan- or Vehicle Registration Number).  A fee must be paid annually in order to reregister the number.

ANNUAL VEHICLE OWNERSHIP TAX 

The second car tax is the annual ownership tax (PKB, or Pajak Kendaraan Bermotor).  This tax rate was boosted around 100% in 2009.  The tax is now equivalent to around 2% of the vehicle’s assessed value.  The steep tax hike has been controversial, the rationale being to reduce the influx of cars that crowd Jakarta’s highways.  Those who own a second car are subject to a progressive tax.  The tax on second vehicles is upwards to 10% of their assessed worth per annum, the exact rate being dependent on the car’s worth.

Passenger vehicles with engines having more than four cylinders are taxed an additional surchage.  The same is true for vehicles weighing more than 1500 kgs. (such as the very popular SUV’s).

Due to these tax hikes, the cost of Jakarta’s toll roads were increased in the range of 13-19%.

VALUE ADDED TAX ON AUTOMOBILES

The sale or transfer of car ownership is subject to a value added tax, or PNN (Pajak Pertambahan Nilai).  Currently it is assessed as 10% of the car sales price.

ROAD INSURANCE

The Indonesian government adminsters a road insurance fund which covers life insurance as relates to traffic accidents.  The annual fee is referred to as SWDKLLJ- Sumbangan Wajib Dana Kecelakaan Lalu Lintas Jalan, or the Compulsory Contribution Fund for Traffic Accidents.  Presently the fee is about IDR 150,000, which amounts to about 12 EURO a year.

STAMP DUTY

In Indonesia there exists a long list of documents that in order to be considered legal must be affixed with a special lick-on stamp called the meterai.  It is a small, blue stamp, and must be “over-signed”” by the signature bearer when signing the document.  If part of the meterai is not penned-over by the signature, it is not legal. Meterai are sold in many sundry places, but are almost always available at the post office (Kantor Pos).  Currently the cost for a basic meterai is IDR 6,000 (about one-half a Euro).

The use of the meterai as a means of validating documents applies to everyone in Indonesia, citizens and foreigners alike. Meterai can be used for personal documents, too, such as promissory notes as associated with personal loans.

Udang-Udang Nomor 13 Tahun 1985 tentang Bea Meterai andPeraturan Pemerintah Nomor 24 Tahun 2000 tentang Perubahan Tarif Bea Meteraiare the current articles of law governing applications of the meterai.

Documents requiring meterai include: insurance contracts, notarial deeds, receipts of many kinds including tax payments, personal contracts such as private loans, letters of agreement, proxies, land transactions, almost any kind of license, power of attorney, statement letters; almost any kind of bank transaction including certificate of deposit purchases, promissory notes, loan and credit agreements.

VALUE ADDED & LUXURY TAXES

VAT and GST (value added and goods & services taxes) are applied to most goods and services as orginate from both inside and outside of Indonesia.  Imports are subject to such taxes, but most exports are not.  As with all the other taxes covered here, this tax classification is applied equally to both Indonesian and foreign entrepreneurs who run PMA businesses (see AngloINFO article on Work and Contracts for more information on PMA’s).

VST/GST taxes are generally referred to as PPN, or Pertambahan Pajak Nilai (Value Added Tax).  The full acronym is PPN/PPn BM as taken from the governing article of law:  Undang-undang Nomor 8 Tahun 1983 tentang Pertambahan Pajak Nilai Barang dan Jasa dan Pajak Penjualan Atas Barang Mewah (Law Number 8 Year 1893 regarding Value Added Tax and Goods and Services Sales Tax on Luxury Goods). Further amendments are found in Undang-undang Nomor 42 Tahun 2003.

To summarize, PPN is the Value Added Tax (VAT).  PPn BM is the Goods and Services Sales Tax (GST) on luxury goods.

The current rate for  PPN  is 10% at point of sale by major vendors.  This tax extends to services furnished by foreign taxpayers outside of Indonesia if the those services benefit Indonesia. Provisions allow for certain items to be taxed as high as 20% with an absolute limit of 35%

PPn BM, or the luxury tax, is levied in addition to PPN.  It is imposed on the delivery of luxury goods both manufactured in Indonesia and imported.  Rates range mainly from 10% to 50%, with a few items taxed as high as 75%.

As PPN is applied to the sale of agricultural products, an important differentiation is made between modern versus traditional retailers. In deference to Indonesia’s older and more traditional market economy in primarily rural areas, cottage industries such as traditional farmer markets and other small, local business concerns such as small-time fishing are exempt from sales and service taxes.  Traditional markets support millions of mainly poor families, and taxation would threaten their livelihoods.

Type of goods that are not subject to Value Added Tax:

• Products of mining or drilling taken directly from the source
• Daily necessities determined as basic to the public need
• Food and beverages as served in hotels, restaurants, cafes, and the like, covering both food and beverages consumed on premise and not, including food and beverages are delivered by a catering business or catering
• Money, gold and securities

Types of services not subject to Value Added Tax:

• Medical health services
• Social services
• Mail services requiring a stamp
• Financial services
• Insurance services
• Religious services
• Educational services
• Arts and entertainment services
• Non-commerical broadcasting services
• Public transport services (land, water, and air)
• Labor services
• Hotel services
• Intra-government services
• Parking services

VST VOUCHERS for FOREIGN TOURISTS

In order to promote sales of luxury items to short-stay foreign tourists, the Ministry of Finance put a VAT rebate program into effect as of April 1, 2010.  If eligible, tourists departing Indonesia may apply for and receive a VAT discount on luxury goods bought in Indonesia at  international airports on the day of departure a specially designated tax counter.

Eligibility is restricted to those individuals who are not Indonesian citizens and for foreigners who have stayed in Indonesia for no longer than two months since arrival in the country.  Foreign residents are excluded.

This is a new program, and currently the list of participating retailers is short, but growing.  Most participants are located in malls across Jakarta and in Bali. (refer to Further Information below for more information)

Conditions :

• Ticket items eligible must be bought at a retail shop with “VAT Refund fo Tourists” logo.
• IMPORTANT: you must ask for the VAT rebate from the retailer the proof of which comes in the form of a tax invoice (faktur pajak) prepared by the retail shop
• Items eligible for discount must total at least IDR 500,000 (40 EURO) as listed on one valid tax invoice from a participating retail ship.  (Multiple invoices can be claimed, but each must total minimum IDR 500,000)
• Goods excluded: food, beverages, tabacco, guns, goods prohibited to be taken onto an aircraft
• Goods must be purchased within one month of the day of departure from Indonesia
• Goods must be carried out of Indonesia as accompanied baggage

Claims procedure:

• Arrive at airport early enough to allow for time taken to process your VAT rebate
• VAT rebate can only be claimed on date of departure from Indonesia
• Declare goods and submit application for VAT rebate to DGT (Directorate of General Taxes) officer at the airport’s tax desk
• Submit original invoice along with an accompanying  tax invoice prepared by the retailer
• Show your airline ticket, passport, and goods purchased
• VAT rebate can be received in cash or through electronic bank transfer to your bank account

PROPERTY TAX

In Indonesia property is assessed in two ways- the land first followed by its state of development.  Property taxes, then, are calculated based on the sum of the worth of the land and any buildings that might occupy it.  The word property, per se, is not a functional term as translated into Indonesian.  Hence “Property Tax” becomes “Land and Building Tax.” 

This tax classification is called the PBB, or Pajak Bumi dan Bangunan (literally, the Earth and Development Tax) as based on articles of law Undang-undang nomor 12 Tahun 1985 tentang Pajak Bumi dan Bangunan as amended by Undang-Undang nomor 12 Tahun 1994.

Land and building tax is payable as one, combined annual tax and is administered by local offices that are part of the larger Direktorat Jenderal Pajak, Kementerian Keuangan Republik Indonesia (Directorate General of Taxes, Finance Ministry of Indonesia).

Rates vary by region, but generally fall between 0.1% to 0.2% of the property value.  Tax reassessments take place every three years except in fast growing areas where assessment is taken every year. 

Residences valued in excess of one billion rupiah (about 80,000 EURO) are taxed at the high end of the tax scale (0.2%).  On the other end of the scale, properties valued at less than 8 million rupiah are exempt from any tax.  So too are properties used for public benefit (such as social, educational, and religious purposes) 

The government does not administer the land and building tax equally, though, and according to their own, local discretion will sometimes waive the tax as applies to poor land owners and farmers, along with those who live in temporary-style structures as built on land the inhabitants don’t own.  The village chief, kelurahan, and other local officials will command some influence over the local tax office’s waiver list.  Because of this, Indonesian property tax is often considered a middle and upper class tax.

Compounding this are those people who live on un-certificated land as held under the unwritten hukum tanah adat, or customary land law.  In this case, land titles don’t exist-  property is passed down through the generations and has not been registered with the government.  Again, local precedence as ministered through the tax office determine if and how any taxes are collected and will vary region-to-region.  The Indonesian government is slowly but surely attempting to certificate land throughout the country, and has more or less accomplished it in urban and developed areas such as Jakarta and Bali.  Hukum tanah adat still applies in countless rural areas.  Land tenure disputes do occur in places such as West Papua.


Land and Building Transfer Tax

When a piece of land changes hands, both buyer and seller must pay a 5% transfer tax as based on the sales price or government assessed value, which ever is higher.

VAT is not applicable to property transfers, but is for residential and commerical leases (10% and 6% respectively).  VAT is also imposed as a 10% one-time tax on development projects.

A luxury tax of 10% is charged buyers of luxury/upmarket houses, residences, condominiums, and townhouses. This is targeted at the wealthy and foreign resident market who tend to cluster in upscale communities in Jakarta and Bali.

Foreigners and Property Taxes

Foreigners cannot buy property in Indonesia, but can lease it, often for extended periods such as twenty-five years.  Though some terms are negotiable, the renter usually pays for property taxes.  This is considered customary as the renter usually benefits through the use of the land directly through its development.  Legally there is supposed to be no two-track system where assessment of property value and property tax differ for citizens versus foreigners.

LOCAL TAXES

Levels of local government which are empowered to levy and collect taxes are two:  the provinces (propinsi), and the districts (kabupaten).

Until the year 1999, Indonesia’s laws favored a highly centralized government.  Provincial and district levels had little power to raise revenue through local taxation.  By 1998 with the fall of Suharto, the central government dominated revenue collection by raising 93% of the sum total for all levels of government in Indonesia.  These revenues were primarily derived from income tax, the value added and luxury taxes, and from oil/gas. 

Of the remaining seven percent, provinces raise 5% and districts 2%.  Local government revenues came mainly from fiscal transfers from Jakarta: grants and revenue sharing from natural resources, shared property tax (PBB), and uses fees.  The decentralization laws of 1999 and 2001 helped restructure central versus local government, but still gave local levels of government little power to increase their local own-source revenues by levying local taxes beyond what law already allowed. 

These percentages and conditions have not changed much within the last decade.

As of today, provincial tax revenues derive mainly from car taxes as discussed earlier: tax on motor vehicles, on vehicle transfer of title, and on motor vehicle fuel.

District governments (kabupatens) are authorized under the Law to levy the following six taxes:

• Hotel and restaurant tax:   10%
• Entertainment tax:     (imposed as a percent of ticket price- maximum 35%)
• Advertisement tax:   ( 25% on annual value of advertising)
• Street lighting tax:   (tax on electricity consumption, 10% maximum)
• Base mineral extraction tax:  (20% on market value of extraction)
• Water tax:   (max. 20% levy on complicated base involving water usage)

Some taxes as levied by the central government are administered and collected locally.  Prominent among these is the PBB, or land and building tax.  The newest formula redistributes allocations, giving local governments 90% of property tax collections to central government’s 10%.  New formulas have also been put in place to more fairly redistribute extracted natural resource receipts.  Natural resources sold by the state as extracted from the provinces now return to local government upwards to 70-80% of the receipts. This scheme has created a gap, enriching a few provinces while resource-poor provinces reap little.

Government decentralization has transfered new political power to local levels, but has shifted responsiblity in equal measure. Decentralization has mandated local governments to take on the onus for delivering many government services.  Despite attempts at revenue redistribution meant to enhance local government coffers, it has not always been enough to cover the costs created by new responsibilities given the provinces and districts.   

This has resulted in a widespread movement of local governments attempting to devise new revenue sources, including levying new taxes.  It has been a challenge as central laws strictly control the type of taxes that local governments can legally impose. 

Given this scenario, it is likely local taxes will increase in Indonesia.  As the overall tax burden on individuals in Indonesia is comparatively low, tax increases in many cases will be bolstered by public support (especially in the case of richer provinces) as many voters favor improved infrastructure and are willing to pay for it through taxation.

FURTHER INFORMATION

Directorate General of Taxes, Ministry of Finance, main website
http://www.pajak.go.id

Introduction to the Indonesian Tax System (in English)
http://www.pajak.net/info/indonesian_tax_system.htm

Forum for Acounting and Taxes in Indonesia (Bahasa Indonesia)
http://www.forumpajak.net/

Indonesian Tax Information (blog based in Indonesia)
http://www.taxlearning.blogspot.com

Overview of Land and Building Tax System in Indonesian (Bahasa Indonesia)
http://www.kanwilpajakkhusus.depkeu.go.id/penyuluhan/PBB/PBBumum.htm

Details on laws concerning own-resource taxation at the local level
http://aysps.gsu.edu/AYSPSdecentral_indonesia2003.pdf

Cost and Taxes of Vehicle Registration in Indonesia
http://indonesia-cars.com/1045/cost-and-taxes-of-vehicle-registration/#more-1045

VAT Brochure (details on VAT refunds for tourists)
http://www.pajak.go.id/dmdocuments/VAT_Brochure.pdf

List of some participating VAT refund retail stores
http://bataviase.co.id/node/405242