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Indonesia changes rules on luxury tax for property

[JAKARTA] Indonesia has changed the way it applies luxury tax to certain apartments and houses, by basing it on value instead of size, in a move that may clear up uncertainty plaguing the property sector.

A house with a sale price of 20 billion rupiah (S$2.04 million) or above is now subject to 20 per cent luxury tax, according to a new ministerial decree.

Previously, the finance ministry put luxury tax of the same rate on houses of 350 square metres (3,770 sq ft) or larger.

The luxury tax also applies to apartments priced at 10 billion rupiah or more, as opposed to the earlier threshold of 150 square metres minimum size. "We have suggested to keep calculating the luxury tax by land size and building size because it is fairer. If the tax is calculated according to price, in 10 years the price wouldn't be applicable anymore," Theresia Rustandi, vice chairwoman of Real Estate Indonesia, a business association, told Reuters on Wednesday. "But for us property developers, what is important is certainty. At least the regulation is out and it makes it clearer for the market to move," she added.

The plan to change the threshold for luxury tax on properties had been discussed for months before finally being introduced last week. The real estate assocation had lobbied the finance ministry several times, asking it not to change the rules.

Finance Minister Bambang Brodjonegoro had repeatedly said the old rule was not fair because it left small but expensive apartments in the middle of Jakarta untaxed.

The government of Southeast Asia's largest economy is facing difficulties in meeting its 2015 revenue target, which many said was unrealistically high from the start.