To the public, central and local taxes may seem similar. Both are mandatory payments taxpayers make. However, they differ in terms of who has the authority to collect them, the types of taxes involved, and how the revenue is managed.
This distinction matters, especially when taxpayers need to make payments or handle tax administration, since the Directorate General of Taxes (DGT) does not administer all taxes.
In general, taxes are mandatory contributions that individuals or entities pay to the state. Taxes are compulsory under the law and do not directly benefit the taxpayer. The revenue is used for state purposes and for the greatest prosperity of the people.
According to content published on the Directorate General of Taxes’ YouTube channel, the following are the differences between central and local taxes.
Two Levels of Tax Authority
The central government collects central taxes, and the revenue forms part of the state budget. The DGT under the Ministry of Finance administers several central taxes.
The central taxes most relevant to everyday life include income tax and value-added tax (VAT). For instance, income tax may be withheld from an individual’s income or salary. VAT, on the other hand, applies to the consumption of taxable goods and services under applicable rules.
Other central taxes include luxury-goods sales tax, stamp duty, and land and building tax for certain sectors.
Land and building tax can be confusing, as its administration is divided between the central and local governments.
The central government transferred rural and urban land and building tax (pajak bumi dan bangunan pedesaan dan perkotaan/PBB-P2) to local governments. The transfer began gradually on January 1, 2010, and took full effect on January 1, 2014.
Accordingly, land and building tax on properties such as houses, land, and buildings in rural and urban areas is a local tax administered by the relevant municipal government.
Meanwhile, land and building tax for plantations, forestry, oil and gas mining, mineral and coal mining, geothermal mining, and other sectors covered by PBB-P5L remains under the central government’s authority.
This division suggests that the type of taxable object alone does not always determine which government administers the tax. You must also consider the relevant sector and applicable rules.
Vehicle Taxes
The division of authority also applies to vehicle taxes. Under Law of the Republic of Indonesia Number 1 of 2022 concerning Financial Relations Between the Central and Regional Government (HKPD Law), motor vehicle tax (pajak kendaraan bermotor/PKB) and motor vehicle title transfer fee (bea balik nama kendaraan bermotor/BBNKB) are provincial taxes.
The provincial government therefore administers them, either through the one-stop administration system (sistem administrasi manunggal satu atap/Samsat) or the Regional Revenue Agency, depending on the applicable procedure. DGT’s tax offices don’t handle such matters.
Besides PKB and BBNKB, provincial taxes include heavy equipment tax, surface water tax, motor vehicle fuel tax, cigarette tax, and non-metallic minerals and rocks tax surcharge, in accordance with the HKPD Law.
At the municipal level, the types of taxes are different. In addition to PBB-P2, they include land and building acquisition duty, advertising tax, groundwater tax, and certain taxes on goods and services.
Taxes on certain goods and services cover the consumption of food and beverages, hotel services, electricity, parking services, and arts and entertainment, subject to local regulations.
Local tax systems also include a tax surcharge, an additional tax imposed at a specified percentage. The HKPD Law provides for a tax surcharge on PKB, BBNKB, and non-metallic minerals and rocks tax.
Administrative Processes
This division of authority also explains why tax policies can differ from one region to another. The HKPD Law gives local governments room to regulate local taxes within their respective authority and in accordance with local conditions.
Local regulations set out further rules. As a result, taxpayers may encounter different tax rates, policies, and applications of certain taxes across regions, as long as they follow the applicable rules.
For example, someone who lives in Lebak Regency but works in Jakarta may deal with different tax administrations because their taxable objects may fall under different local governments.
Understanding this division of authority is important when handling tax matters. The central government administers income tax and VAT through the DGT. By contrast, local governments administer PKB, BBNKB, PBB-P2, and other local taxes.
This distinction also determines where taxpayers should handle their tax obligations. Simply put, central taxes form part of the state budget revenue. In contrast, local taxes form part of regional revenue under the regional budget, including locally generated revenue under applicable rules.
Thus, the DGT should handle issues concerning income tax or VAT. For motor vehicle tax, PBB-P2, and other local taxes, taxpayers should contact the relevant local government based on the type of tax and the applicable jurisdiction.
Knowing these differences is not merely about identifying tax types. It helps taxpayers identify the right administrative channel and understand how tax authority is divided between the central and local governments.
Understanding the complexities of tax jurisdiction and how they vary across regions is crucial for managing both business and personal tax matters efficiently. If you have further questions about central or local tax compliance, Ideatax can help you navigate the relevant tax administration requirements.
Legal References
- Law of the Republic of Indonesia Number 12 of 1985, as amended by Law of the Republic of Indonesia Number 12 of 1994 concerning Land and Building Tax.
- Minister of Finance Regulation Number 81 of 2024 concerning Tax Provisions within the Coretax Administration System.
- Directorate General of Taxes Regulation Number PER-23/PJ/2021 concerning Land and Building Tax Object Notification Letters.
- Minister of Finance Regulation Number 118/PMK.01/2021, as amended by Minister of Finance Regulation Number 135 of 2023 concerning the Organization and Work Procedures of the Ministry of Finance.
- Directorate General of Taxes Regulation Number 61/PJ/2010 concerning Procedures for Preparing the Transfer of Rural and Urban Land and Building Tax to Local Tax.
Also Read:
Tax Refunds Are a Right, Not a Fiscal Favor
What Is Tax in Indonesia?
Breaking Down the Article 21 Withholding Tax Provisions
Editor: Thomas Rizal