Page 10 - Working Paper (Fiscal Decentralization and Sub-national Taxes: Specific Case of Indonesia)

DDTC Working Paper 1015
10

Figure 5 - Property Tax Structure and Progressivity across G20 Countries

France 4.3
UK 4.21
Canada 3.54
US 3.14
Argentina 2.9
Japan 2.69
Korea 2.62
Australia 2.47
China 1.73
South Africa 1.39
Brazil 1.25
Russia 1.2
Italy 0.81
Germany 0.8
Indonesia 0.57
India 0.48
Turkey 0.27
Mexico 0.25
0 1 2 3 4
Property Tax Revenue as Percent of GDP
Source: Prakash, P,”Property Taxes Across G20 Countries: Can India Get it Right?” OXFAM India Working Paper Series, January 2013.

Figure 6 - Share of Property Tax Revenue in Indonesia Urban, Plantation, Forestry, Minerals and Coal
and Oil and Gas Mining respectively 3 percent, 5.4
3% Rural percent, 5.2 percent, 1.2 percent, 2.5 percent, and
82, 8 percent.
6% Urban
Table 7 below depicts the percentage of each
business tax to locally owned-revenue in the
5% Plantation district and city throughout Indonesia for the year
of 2009 to 2012. The biggest contributor to the local
1% Forestry tax revenue is street lighting tax with an average
of 14.9 percent for the city and 12.83 percent for
the district. The second largest contributor is the
2% Non-mining restaurant tax in the city area that reached 7.33
percent. Percentages for hotel tax to PAD in the
83% Mining city and district are not much different at around
5 percent.

Source: Financial Note and Plan National Budget (RAPBN) 2014 Sensitivity analysis was also conducted in
this paper to find out the effect of property tax
revenue reduction to Gross Domestic Product. It is
of GDP). As stated above, property tax (for urban understood that property tax will decrease at the
and rural) is fully regionalized in 2014. Although, level of around 10 percent minimum in the near
in practice only limited number of sub-national future. As identified from previous literatures,
governments such as city of Surabaya that has been Marginal Propensity to Consume (MPC) in
able to execute the mandate due to readiness of the Indonesia is around 0.686 and, as a result, tax
tax administration. multiplier will about -2.2 (=-0.686/0.314). This
means that for one rupiah increases in tax revenue
The development of the property taxes revenue
will put downward pressure to Gross Domestic
collection, as shown in Table 6 on the next page,
Product by 2.2 rupiah. Additionally, property
moves at nearly the same level after the enactment
tax multiplier is -0.08 or about 4 percent of tax
of Law No. 28 of 2009 on Local Taxes and Levies,
multiplier (0.04*-2.2). In aggregate, there is a
where PBB of Rural and Urban object has been
positive effect of reducting property tax to GDP.
handled by the City/District Government. In 2012
The effects are larger as the percentage of property
fiscal year contribution for each sector are as
tax reduction increases. Furthermore, property
follow 4.0 percent (rural), 21.1 percent (urban),
tax buoyancy in Indonesia over the course of 2001
3.8 percent (plantation), 0.9 percent (forestry),
– 2013 is around 2.98% meaning a one percent
2.0 percent (mineral) and 68.3 percent (oil & gas).
increases in GDP growth affects an increase in
Similarly, the growing collection as shown in the
property tax revenue by 2.98%.
same table with remaining classification Rural,