The Indonesian government has temporarily cut the value-added tax (PPN) on new homes and the luxury tax (PPnBM) on new car purchases in a bid to boost consumer spending.
Coordinating Minister for Economic Affairs Airlangga Hartarto on March 1 said the tax cuts were expected to add between 0.9 and one percentage point to the country’s gross domestic product (GDP) growth this year by reviving the real estate, construction and automotive sectors, all of which are labour-intensive industries.
“These incentives, of course, cannot be separated from the people’s confidence in the vaccine and Covid-19 containment efforts as the keys to recovery,” he said during a joint press conference with the public works and housing; finance; and industry ministers.
Indonesia officially began its vaccination programme on January 13 with President Joko “Jokowi” Widodo taking the very first jab. The government planned to have vaccinated 1.5 million health workers by February, 38.5 million senior citizens by May and 141.3 million other citizens by March 2022.
Minister of Finance Sri Mulyani Indrawati on Monday 1 said the government needed to allocate five trillion rupiah ($349 million) for the PPN cut and 2.99 trillion rupiah for the PPnBM cut. The tax cuts are part of the 58.46 trillion rupiah National Economic Recovery budget for business incentives.
“We’re supporting the lower-income group through social aid and we’re supporting the middle-income group through incentives in these sectors. This is a model that we are using to try to revive household spending,” said Sri Mulyani, whose ministry recently issued two regulations to implement the tax incentives.
Finance Ministry Regulation No 21/2021 will cut the PPN for landed houses and low-cost apartments purchased between March 1 and August 31. The tax will be cut 100 per cent for houses priced below two billion rupiah and 50 per cent for houses priced between two and five billion rupiah.
The regulation caps the incentive to one house per citizen and forbids owners from reselling the houses within a year of purchase.
“This has been done to encourage the sales of houses that were built by developers last year and this year but which have not yet been absorbed by the market,” said Minister of Public Works and Housing Basuki Hadimuljono, adding that around 27,000 such houses were eligible for the tax cut.
However, Indonesian Consumer Foundation (YLKI) head Tulus Abadi said that such incentives might not revive consumer spending or even be attractive to potential purchasers.
“One of the most common complaints from consumers regarding housing is about quality. Some developers will reduce the quality of a subsidised home, for example. So, it is important to monitor the implementation of this incentive in the future,” he told The Jakarta Post in a phone interview on March 1.
THE JAKARTA POST/ASIA NEWS NETWORK