Land and Building Tax Burdensome to People

In recent years, people have complained about the continuous increase in land and building tax or property tax (PBB).

Amid tough economic conditions, some people are unable to bear the additional burden of routine annual expenses to pay and choose to be in arrears for PBB, or sell their land and buildings and relocate to the suburbs, where PBB is cheaper. As a result, there has been a decrease in the quality of the housing concerned.

The property tax targets all individuals and entities who have rights to land, benefit from the land, own buildings, control buildings and obtain benefits from buildings. Because the objects on the land are rice fields, dry rice fields, gardens, land plots, yards and mines, and the objects of buildings are residential houses, commercial buildings, high-rise buildings, shopping centers, fences, swimming pools and toll roads, so from farmers to laborers, from retirees to big businessmen, all have an obligation to pay property taxes.

Then, in 1959, the PPTP changed to the Land Product Tax (PHB) through Government Regulation in Lieu of Law (Perppu) No. 11/1959, which with Law No. 1/1961 was stipulated as a Law.

Taxes on land have existed since the pre-independence era. After independence, the government continued to collect taxes on land under the name of the Land Tax, which was abolished by Law (UU) No. 14/1951 and replaced by Income Tax on Agricultural Land (PPTP). Then, in 1959, the PPTP changed to the Land Product Tax (PHB) through Government Regulation in Lieu of Law (Perppu) No. 11/1959, which with Law No. 1/1961 was stipulated as a Law.

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The Decree of the Minister of State Contribution No. PMPPU 1-1-3 dated 29 November 1965 declared the PHB as a Regional Development Contribution (Ipeda). It collected taxes from land in the rural, urban, forestry, plantation and mining sectors. Apart from the Ipeda, up to the year 1985, six property taxes and other levies on land and buildings were imposed on people, which caused an overlap between one tax and another and caused a double tax burden to the people.

Through the enactment of Law No. 12/1985, there was a simplification of the amount and types of taxes on land and buildings. Seven types of property and property taxes on land and buildings were simplified into the PBB. The seven types of taxes revoked by Law No. 12/1985 include the 1908 Household Tax Ordinance, Indonesian Verponding Ordinance of 1923, Verponding Ordinance of 1928, Wealth Tax Ordinance of 1932, Road Tax Ordinance of 1942, Emergency Law of 1957 concerning General Regional Tax Regulations, Articles 14 j, k and l, and Law No. 11/1959 concerning Land Product Tax.

The simplification of the PBB calculation is reflected in, among other things, the implementation of a single 0.5 percent tariff and the taxation base, which is only one type, namely the taxable value of the property (NJOP).

People feel that the obligation to pay the PBB is very light. Although the tariff is 0.5 percent, the NJOP set by the central government is far below the market price.

In 1994, the government issued Law No. 12/1994 on Amendments to Law No. 12/1985 on Land and Building Taxes. The essence of this amendment is an adjustment to the practice of developing the implementation of business activities, which has not been accommodated in Law No.12/1985. With Law No. 28/2009 on Regional Taxes and Levies, the authority to collect Land and Building Taxes in the Rural and Urban Sector (PBB P2) is delegated to the regency/city administrations. This transfer is a form of follow-up to policies on regional autonomy and fiscal decentralization, as stated in Law No. 28/2009 on Regional Taxes and Regional Retribution (PDRD).

This authority is stipulated in Article 80 of the PDRD Law, in which each regency/city can determine its own PBB-P2 tariff with a maximum stipulation of 0.3 percent. From 2009 onward, since the authority has been with the regional administration and because it is the mainstay of local revenue (PAD), the PBB has increased dramatically from year to year.

From the 54 years since Indonesia's independence in 1945 until the last arrangement on the PBB in 2009, the arrangement has changed nine times, or on average every six years. This illustrates that we have not been able to create laws that can last for a long time and gives the impression to foreigners that we are a country with low legal certainty.

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The increase in the PBB set by the regional administration is also stimulated by the classification set by the Home Ministry, which states that the higher the percentage of PBB to PAD, the better; if it is above 50 percent, it is classified as very good.

The determination of the amount of PBB is (maximum 0.3 percent) x (NJOP-NJOP Not Taxable). NJOP is the taxable value of the property determined by the regency/city administration. When the PBB-P2 was managed by the central government, regencies/cities only got a share of 64.8 percent of the total revenue from the PBB-P2 in their territory. With the transfer, PBB-P2 revenue fully goes to the regency/city administrations in order to increase PAD.

From 1 January 2014 until now, all regencies/cities in Indonesia have managed the PBB in the rural and urban sectors (P2). Meanwhile, PBB in the mining, forestry and plantation sector (PBB P3) is still under the authority of the central government through the Taxation Directorate General. The proportion of the PBB in the structure of state revenues is not large, and it should be so.

The contribution of the PBB in 2015 amounted to Rp 29.3 trillion (US$1.99 billion) of the total state revenue of Rp 1.508 quadrillion (1.94 percent) and stood at Rp 18.6 trillion in 2020 from the total state revenue of Rp 2.221.5 quadrillion (0.83 percent). However, the percentage of PBB is quite high in PAD.

PAD reflects the independence of a region in financing its own regional needs without assistance from the central government.

PAD is revenue that is earned by the region from sources within its own territory that is collected based on local regulations in accordance with the existing laws and regulations. PAD reflects the independence of a region in financing its own regional needs without assistance from the central government.

For example, in Jakarta, the PBB-P2 contribution to the 2015-2019 provincial PAD averaged 19.64 percent with an increasing trend. For Surabaya, East Java, the average during 2013-2017 was 20.68 percent. In the city of Parepare, South Sulawesi, the average contribution of PBB-P2 to PAD 2015-2019 is 3.58 percent.

From the sale and purchase of land and buildings, income tax (PPh) goes to the central government and the cost of acquiring land and building rights (BPHTB) goes to the local administrations. Several regions consider the economic condition of the community in determining the NJOP. The city of Surabaya, in the era of former mayor Tri Rismaharini, decided not to increase the PBB in the city even though the market value of the tax object increased. She knows that the economic conditions of the people do not allow her to put more burden by increasing the PBB. The value of NJOP is below the market price of land and buildings.

Thankfully, since BTP, with Gubernatorial Regulation No. 259/2015, for houses whose NJOP is below Rp 1 billion are free from property tax.

Meanwhile, Jakarta, since the era of former governor Basuki Tjahaja Purnama (BTP), has adopted a policy of drastically increasing the NJOP, adjusted to the market value. The increase in NJOP once reached 300 percent. This pattern continues to be used until now for NJOP, adjusted to the market price of the tax object. In some locations, there have even been transactions for buying and selling land/buildings whose prices are below the NJOP set by the regional administration. Thankfully, since BTP, with Gubernatorial Regulation No. 259/2015, for houses whose NJOP is below Rp 1 billion are free from property tax.

A healthy country or region is one whose development and management costs come from community taxes. Taxes arising from transactions, namely sales tax, PPN, PPh, as well as BPHTB are very appropriate to be imposed because there is income earned.

However, the house tax is a tax on residences, so it should be very low. With the high PBB, many former officials who originally lived in the elite Menteng area, Jakarta, had to sell their houses. Even the family of former vice president Adam Malik was unable to keep their parents' house on Jl. Diponegoro. Now the Menteng area is mostly inhabited by big businessmen.

The city administrations, especially the Jakarta administration, need to reconsider the amount of PBB with the lightest possible orientation and can increase PPh and BPHTB for land and building sale and purchase transactions.

When handled by the central government, in almost all regions of the country, the NJOP set was much lower than the market value. That's what makes the PBB imposed on the community so small. However, now, if the NJOP is set below the market value, landowners can be disadvantaged when the government needs land for road widening, construction of ports, airports and others because the government buys it at the NJOP price.

Efforts to relieve PBB for the people can be sourced from the calculation figures. Since the law stipulates a maximum of 0.3 percent, it means that it could be set at 0.1 percent or lower. NJOP is indeed difficult to reduce because the selling value of the tax object should indeed be the same as the market value. There is the thought that for the purchase of the first house, the government should impose a very light PBB tariff, in contrast to the tax for the purchase of the second house. What happens in Indonesia, the NJOP of the second house is lower because it (the second property) is usually a villa in a rural area.

The Jakarta administration and many other regions cannot take people's complaints lightly regarding the increase in the PBB that must be paid by residents. The state/local administration should be grateful that the residents' houses are beautiful because they represent high welfare and a good environment because they have already paid PPh from their income; and when people build or buy houses, they are also taxed.

The issues relating to the PBB are in the hands of local administrations. However, the central government needs to provide an appropriate limit setting for the proportion of the PBB to a region's PAD. This is an important part of housing and land politics. It is not appropriate to make the PBB the main source of PAD.

The aim of our state is to create prosperous people and one of the indicators is to have a decent house. In terms of its nature, the PBB is indeed a material tax. This means that the amount of tax payable is determined by the condition of the object, namely land and/or buildings. Meanwhile, the condition of the subject does not determine the amount of tax.

We hope that the revision of the PBB Law will produce new regulations that truly take into account the aspirations of the public, especially the economic condition of the residents of the house.

The efforts to revise the PBB Law reappeared in 2020, to be revised in the 2020-2024 period together with, among other laws, the Stamp Duty Law, the Law on General Provisions and Tax Procedures (KUP), the Income Tax Law, the Customs Law and the Excise Law. We hope that the revision of the PBB Law will produce new regulations that truly take into account the aspirations of the public, especially the economic condition of the residents of the house.

The imposition of taxes should not burden people's lives. The tax should be a reflection of the rotation of economic activity. We must push the economy to turn faster so that tax revenues can increase as expected. We need to learn from the empirical history of the economies of many countries that in order to make the economy spin faster, tax rates have been lowered but state revenues have actually increased.

We need an economy that turns faster. The author believes that the people's burden related to the PBB must be reduced so that the people can be more productive.

KOMPAS/ALIF ICHWAN

Siswono Yudo Husodo

Siswono Yudo Husodo, Chairman of the Trustees of the Pancasila University Foundation

(This article was translated by Kurniawan Siswo)