Real Estate Indonesia chief wants VAT waiver on new homes extended for another year

Jakarta

THE largest property developer association in Indonesia is urging the government to consider extending its temporary waiver of value-added taxes (VAT) on new home sales again, this time for another 12 months.

This tax incentive first came into effect in March this year and was due to expire in August, but this deadline was later pushed back to Dec 31 in an effort to spur the construction and property sectors during the ongoing coronavirus pandemic.

At a recent webinar, Real Estate Indonesia's (REI) secretary-general Amran Lukman said the Jakarta-based organisation has already started to lobby the authorities for a one-year extension, as this move would go a long way towards boosting the recovery of South-east Asia's largest economy.

Under the current rules, the 10 per cent VAT for properties priced below 2 billion rupiah (S$191,000) is waived in full, while buyers of homes that cost between 2 billion and 5 billion rupiah can enjoy a 50 per cent VAT discount.

One of the conditions of enjoying this perk is that buyers can tap on this waiver for only one property, which cannot be resold for at least a year.

By some estimates, the absorption of the VAT by another year could cost the government another 10 trillion rupiah. The original six-month period for the waiver from March to August cost some 5 trillion rupiah.

Latest figures suggest that the tax incentive is helping to boost consumer confidence and encourage people to buy homes, which in turn help to support the economy as it recovers from the impact of the pandemic.

Data from the Ministry of Public Works and Housing shows that over 149,000 residential units have been sold in November this year, an increase of 2.85 per cent compared to 2020.

The majority of the mortgage loans issued in 2021 have been for properties on Java and Sumatra islands, and Lukman feels that the tax incentive could also see more people buying homes on other islands such as Borneo and Sulawesi next year.

At the same webinar, a senior official from Bank Tabungan Negara said the state-owned bank has set a target of issuing more than 200,000 mortgage loans for residential units in 2022.

Earlier this year, Bank Indonesia removed downpayment requirements for property mortgages and vehicle loans, on top of interest-rate cuts amounting to 150 basis points.

At a briefing last Thursday (Nov 25), Finance Minister Sri Mulyani Indrawati said Indonesia is targeting tax revenues of 1,444.5 trillion rupiah in 2021, with the government already collecting 78 per cent of that figure as of Oct 31.

The latest official full-year GDP growth forecast for 2021 is between 3.5 per cent and 4 per cent, a slight downward revision from an earlier estimate of 4 per cent growth.