VAT on the Handover of Landed Houses and Flats: Opportunities and Challenges

Jakarta, Ideatax -- Bank Indonesia reported that residential property sales in the fourth quarter of 2023 increased by 3.37% compared to fourth quarter of the previous year. Furthermore, Bank Indonesia also reports that the increase in residential property sales was due to growth in medium and large-sized houses sales. In the fourth quarter of 2023, for example, sales of medium-type houses recorded a growth of 6.29%, while sales of large-type houses experienced an increase of 19.93% (Kontan 2024).

Sales of small houses were different. Bank Indonesia noted that sales of small houses in the fourth quarter of 2023 decreased by 1.60% (Kontan 2024).
Based on the results of a survey by Bank Indonesia, there are four factors that have caused a slowdown in sales of small houses:

1. Issues in licensing and bureaucracy (as many as 33.62% of respondents),
2. Issues related to mortgage interest rates (28.07% of respondents),
3. Issues related to the high proportion of down payments in mortgages application (22.83% of respondents) and
4. Issues related to taxation (as many as 15.47% of respondents).

 

The government realizes that tax is still an issue in the small and medium-sized landed houses sales. Therefore, at the beginning of 2024, the government issued Minister of Finance Regulation or Peraturan Menteri Keuangan (PMK) Number 7 of 2024 concerning Value Added Tax on the Handover of Landed Houses and Flats Covered by the Government in Fiscal Year 2024.

As stated in the consideration, one of the reasons behind the issuance of this provision is to increase economic growth through stimulating people's purchasing power in the housing sector. In addition, the fiscal incentives provision is intended to strengthen the macroeconomic foundation after the COVID-19 pandemic. Previously, the government had provided fiscal incentives for landed houses and flats sales through Minister of Finance Regulation Number 120 of 2023.

Through this regulation, the government regulates that it provides fiscal incentives in the form of VAT covered by the government on the handover or sale of landed houses and flats with a maximum selling price of IDR 5 billion that are new landed houses or flats that are handed over in a ready-for-occupancy condition.

In accordance with the principles of timely, targeted, and temporary provision of fiscal incentives, the government limits the provision of these incentives to the handover of property during January 1 to December 31, 2024.

Moreover, the property handover is by signing an act of sale and purchase by a land deed official, signing a binding agreement for the sale and purchase in full before a notary, and the minutes of the property handover. Thus, if the property handover minutes are signed before January 1, 2024, the sale is not entitled to the VAT covered by the government facility.

Keep in mind that the VAT covered by the government on the property handover is only for private buyers for their purchase of one unit of property. Thus, if a person purchases more than one unit of property, then the person is only eligible to get the VAT covered by the government facility for the one unit of property purchase.

Furthermore, individuals with eligibility to government-covered VAT facilities are Indonesian citizens with an NPWP (tax identification number) or NIK (customs identification number or foreign citizens who have an NPWP as long as they fulfill the provisions related to the ownership of landed houses and flats.

 

Period of Facility Provision
To reduce disputes in the application of the government-covered VAT facility, the government stipulates that in the event that the down payment for landed houses or flats paid before January 1, 2024, the government-covered VAT incentive is eligible if it meets the following criteria:

1. The down payment or first installment is paid no earlier than September 1, 2023.
2. The deed of sale of land and buildings, repayment agreement, or handover minutes are signed in the period of January 1 to December 31, 2024.
3. VAT covered by the government is given only on VAT payable on the remaining installments and repayments given in the period of January to December 2024.

 

As before-mentioned, in 2023, the government will also provide a government-covered VAT facility on the property handover through Minister of Finance Regulation Number 120 of 2023. Therefore, in the event that individuals have utilized VAT DTP before 2023, they can get the government-covered VAT facility in 2024 for the remaining payments owed.

 

Amount of VAT DTP Incentive
Regarding the incentives provided, the government regulates that for the property handover from January 1, 2024, to June 30, 2024, a 100% government-covered VAT facility is provided. Furthermore, for the property handover during July 1, 2024, to December 31, 2024, a government-covered VAT facility of 50% is provided. The matrix of VAT DTP incentives can be seen in the following table:

 

No	Periode Penyerahan	DPP	Harga Jual Maksimal	Besaran Insentif PPN DTP
1	Januari  - Juni 2024	Maksimal 2 Miliar	Maksimal 5 Miliar	100%
2	Juli – Desember 2024	Maksimal 2 Miliar	Maksimal 5 Miliar	50%

For example, a landed house purchase with 2 billion during January to June 2024 will result in a government-covered VAT of 220 million. The government-covered VAT of 220 million is obtained by multiplying the VAT rate of 11% by the tax base of 2 billion rupiah. Furthermore, for the purchase of a residence with a price of 4 billion rupiah during the period of January to June 2024, a VAT DTP facility of 220 million will be obtained. The amount of the VAT DTP facility provided remains at 220 million because PMK 7 of 2024 determines that the amount of tax imposition base provided with the facility is 2 billion. Thus, even though the property price exceeds 2 billion, the tax base provided by the facility remains at 2 billion rupiah.

This difference between the tax base and the selling price has its own implications. Property sellers must make two tax invoices for each handover. First, the seller must make a tax invoice with code 07 for deliveries with a value below 2 billion. The issuance of this invoice is intended to report the sale of properties that receive government-covered VAT facilities. Second, the property seller must also create a tax invoice for the sale of properties that do not receive government-covered VAT facilities.

For example, the seller must make two tax invoices for the property sale with a price of 3 billion rupiah. First, a tax invoice with code 07 for a tax base of 2 billion rupiah. Second, a tax invoice with code 01 for the handover that does not obtain a government-covered VAT facility of 1 billion.

From this, we can conclude that, basically, the provision of tax facilities on property sales is able to catalyze economic growth by increasing people's purchasing power. However, incentives alone are not enough. The government needs to simplify the business process of government-covered VAT reporting to achieve the voluntary compliance.

 

References
Kontan. 2024. Penjualan Rumah Tapak Meningkat pada Akhir Tahun 2023. February 23. Accessed March 10, 2024. https://nasional.kontan.co.id/news/penjualan-rumah-tapak-meningkat-pada-akhir-tahun-2023.
—. 2024. Pertumbuhan Harga Rumah Tapak Melandai pada Kuartal IV 2023. Februari 19. Accessed Maret 10, 2024. https://nasional.kontan.co.id/news/pertumbuhan-harga-rumah-tapak-melandai-pada-kuartal-iv-2023.