Tax Aspects of Transferring Property Rights
Jakarta, Ideatax -- Bank Indonesia (BI) reported that there was a decline in the commercial property demand index in the first quarter of 2023 (Bank Indonesia, 2023). In the first quarter of 2023, the commercial property demand index was only able to grow by 0.58% (yoy). Whereas, in the fourth quarter of 2022, the commercial property demand index was able to grow by 0.76% (yoy).
The same thing happened on the supply side. Bank Indonesia noted a decline in the property supply index during the first quarter of 2023 (Bank Indonesia, 2023). In the first quarter of 2023, for example, the property supply index was only able to grow by 0.83% or lower than the previous quarter which grew by 1.00% (yoy).
Many factors affect the property supply and demand index. Wulandari, Achsani and Sartono (2017), say that there are several factors that influence the property price index in high-income countries and low-income countries. The property price index in high-income countries tends to be influenced by demand, supply, property, price, and institutional factors. On the other hand, the property price index in lower-middle-income countries is not much influenced by the price of the property itself. Another study conducted by Steven and Sutanto (2022) found that income tax and VAT on property sales affect the performance of the property industry. Then, how exactly is the taxation aspect in property sales? Here is the review.
In general, income from the transfer of rights to land and buildings is defined as income received or obtained by the party transferring rights to land and/or buildings through sale and purchase, exchange, release, transfer of rights, auction, grant, inheritance, or other means agreed upon by the parties.
This regulation can be found in Government Regulation Number 34 Year 2016 on Income Tax on Income from Transfer of Rights on Land and/or Building, and Sale and Purchase Agreement on Land and/or Building and its Amendments.
Furthermore, Government Regulation Number 34 Year 2016 also regulates that on income received or obtained by individuals or entities derived from: transfer of rights to land and/or building; or binding agreement of sale and purchase of land and/or building and its amendments are payable final Income Tax.
There are three types of rates used for income from the transfer of land and building rights. First, a rate of 2.5% is imposed on income from the transfer of rights to land and/or buildings other than the transfer of rights to land and/or buildings in the form of Simple Houses or Simple Flats conducted by Taxpayers whose main business is to transfer rights to land and/or buildings.
Second, a rate of 1% is imposed on income from the transfer of rights to land and buildings in the form of Simple Houses and Simple Flats conducted by Taxpayers whose main business is to transfer rights to land and/or buildings.
Third, a 0% rate is imposed on income from the transfer of rights to land and buildings to the government, state-owned enterprises that receive special assignments from the government, or regional-owned enterprises that receive special assignments from the regional head, as referred to in the laws governing land acquisition for development for the public interest.
To avoid disputes in the calculation of final income tax on the transfer of land and building rights, Government Regulation Number 34 Year 2016 also regulates the definition of sale/transfer value. There are five types of transfer value that become the basis for calculating final income tax, namely the value based on the decision of the authorized official, the value based on the minutes of auction, the value that should have been received or obtained, the value that was actually received or obtained, and the value that should have been received or obtained based on market prices.
It is known that the principle of justice is a principle that must be adhered to by lawmakers in formulating a regulation. In terms of taxation, fairness can be interpreted as the obligation of taxpayers to share fairly in the costs of government (Suasa, Arjaya, & Seputra, 2021). There are two dimensions of tax justice, namely vertical justice and horizontal justice. Vertical justice is justice achieved when taxpayers with higher incomes pay more taxes. Meanwhile, horizontal justice is justice achieved when taxpayers who have the same income pay the same tax.
Therefore, to realize vertical and horizontal justice, Government Regulation No. 34/2016 provides income tax exemption on the sale of land and buildings under certain conditions. Sales of land and buildings that are exempted from final income tax article 4(2) are as follows:
Transfer of land and/or building by individuals who have an income below the minimum threshold
Transfer of land and/or building whose value is less than sixty million rupiah
Transfer of land and/or buildings due to grants to blood relatives, religious bodies, educational bodies, social bodies including foundations, cooperatives, or individuals running micro and small businesses
Transfer of land and/or building due to inheritance
Transfer of land and/or building in the context of merger, consolidation, consolidation or expansion of business
Transfer of assets in the form of Built Operate Transfer (BOT) and Build Transfer Operate (BTO)
This is a brief explanation of income tax on property sales. If you need further information or assistance, you can contact Ideatax.
Law Number 7 Year 1983 on Income Tax as amended by Law Number 7 Year 2021 on Harmonization of Tax Regulations
Government Regulation No. 34/2016 on Income Tax on Income from Transfer of Rights on Land and/or Building, and Sale and Purchase Agreement of Land and/or Building and its Amendments
Bank of Indonesia. (2023). Commercial Property Development. Jakarta: BI.
Steven, S., &; Sutanto, H. (2022). The effect of Value Added Tax and Income Tax on profit and loss in the property and real estate sector for the 2017-2021 period. MSEJ : Management Studies and Entrepreneurship Journal , 3950–3958.
Suasa, M., Arjaya, I., &; Seputra, I. (2021). THE PRINCIPLE OF FAIRNESS OF TAX COLLECTION IN GOVERNMENT REGULATIONS. Journal of Legal Preferences, 6-10.
Wulandari, C. S., Achsani, N. A., &; Sartono, B. (2017). Factors Influencing the Residential Property Price Index Based on State Income Level: An Empirical Review in 27 Countries. IPB Repository.
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