Page 9 - Working Paper (Fiscal Decentralization and Sub-national Taxes: Specific Case of Indonesia)

DDTC Working Paper 1015
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Table 5 - Revenue Sharing based on Law 33 of 2004 (in percentage)
Revenue-shared Sourced Central Gov Prov Originating LGs Other LGs in the same Prov All LGs
Personal Income Tax 80 8 12 - -
Property Tax 9 a 16.2 64.8 - 10 b
Land & Building Transfer fee - 16 64 - 20
Forestry: land-rent 20 16 64 - -
Forestry: resource rent 20 16 32 32 -
Forestry: reforestation 60 - 40 c - -
Mining: land-rent 20 16 64 - -
Mining: Royalty 20 16 32 32 -
Fishery 20 - - - 80
3 6 6
Oil 84.5
0.1 d 0.2 d 0.2 d
6 12 12
Gas 69.5
0.1 d 0.2 d 0.2 d
Geothermal 20 16 32 32
Notes: a ) 9 percent of the revenue collected from property tax is defined as administration costs and distributed equally to all local government; b ) 10 percent of the revenue collected
from property tax is allocated to all local governments based on the actual property tax revenue collection at the current year. 6.5 percent is distributed to all governments, and 3.5
percent is given as incentive to all local governments, which have revenues exceed the target of collection from the previous year. Currently, Central Government has relinquished all
property tax receipt for household to local governments; c ) Revenue Sharing from reforestation is an ear-marked grant to rehabilitate forests in originating local governments; d ) 0.5
percent of the revenue sharing from oil and gas is allocated to Provinces and vertically below local governments as additional fund for education (ear-marked grant).

As mentioned above, revenue sharing is part From Figure 5 on the next page, at macro level,
of the intergovernmental transfer that currently Indonesia has a property tax to GDP ratio of around
implements. It is also a tool to address the problems 0.57 percent, which is one of the lowest among G20
of vertical fiscal imbalances between central and countries as compared to G20 and BRICS averages
local governments. As in many developing countries, of 1.21 percent and 1.90 percent respectively. The
major taxes are still remains at the central level, i.e. number is also not different to when comparing
Personal Income Tax (PIT), Value added tax, and property tax revenue as % of total taxes revenue
most of property tax. Almost all money obtained where the figure for BRICS on average is 4.85
from property tax collection is allocated to local percent and 7.60 percent for G20 on average.
governments through revenue sharing. Looking India, Turkey and Mexico are below Indonesia
on the decomposition of tax revenue for 2014 with the figure of 0.48 percent, 0.27 percent, and
National Budget, revenue collected from value 0.25 percent, respectively. Indonesia’s Property
added and income tax is substantially larger than Tax Base comprises mainly recurrent immovable
the other taxes. For example, revenue combined property tax.
from property tax, excise tax, international trade
Property is assessed in two ways: first the
tax, and other tax is still lower to revenue coming
land is valued, then any development that is
from value-added tax.
present on that land is valued. Property taxes are
Figure 4 - Decomposition of Tax Revenue in Indonesia therefore calculated on both the land’s worth and
any buildings that might occupy it. Property tax in
100% Indonesia is thus defined as Land and Building Tax
or Pajak Bumi dan Bangunan. Land and Building
80%
Tax is paid annually and is administered by the
local offices of the Directorate General of Taxes
60%
rates vary by region, but are generally between
40% 0.1 percent to 0.2 percent of the property’s value.
Tax re-assessments take place every three years,
20% except in fast-growing areas where re-assessment
takes place every year.
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Figure 6 shows that property tax revenue in
Indonesia mainly comes from PBB P3 (plantation,
Income Tax Excise Tax forestry, mining, and non-mining – 5,1, 2, 83
Value-added Tax International Trade Tax percent, respectively). Meanwhile, property tax
of urban and rural is only 9 percent of the total
Property Tax Other Tax property tax revenue or around 0.4 percent of
Source: APBN 2014 total tax revenue (or even less than 0.06 percent