The tax amnesty program released by the Government of Indonesia in July 2016 has been successful regarding tax revenue and asset declarations in its first phase. Many parties predict that the property sector will be one of the most popular investment instruments for participants in the tax amnesty. Is that possible?

This prediction is quite reasonable. Minister of Finance Regulation No. 122/PMK.08/2016 regarding the Procedures for Taxpayer Transfers into the Territory of the Republic of Indonesia and Placement in Investments Beyond the Financial Markets in the Context of Tax Amnesty (“PMK 122/2016”) states that funds which have been diverted and placed in a particular account can be invested in the property sector in the form of land and/or the buildings erected on it.

Still in PMK 122/2016, the Government provides that the funds transferred in tax amnesty program should be invested for a minimum of 3 years. This 3-year period is calculated from when the funds are transferred to a particular account in the collecting bank designated as a gateway or from the transfer of management to another collecting bank designated as a gateway.

One of the investments that fits these terms is property, as a long term investment with the expectation of benefits from increased property values over time. Moreover, property is considered to be a productive investment, producing income from rents or utilisation as a place for business.

Currently, business people in Indonesia are still in ‘wait and see’ mode in relation to the implementation of the tax amnesty to determine their best investment instruments. This means that we can’t yet see the significant impact of the tax amnesty on the growth of the property sector. In the second period of the tax amnesty, which runs from October to December 2016, business people’s attitude and its impact to the property sector will become visible.

Meanwhile, since it is a long-term program and its impact will not be felt for a few years, the consistency of the Government is the main thing that needs to be considered and maintained. We don’t want to see the repatriated funds re-transferred out of Indonesia.

The public and developers must be constantly informed on how to calculate the redemption rate and the prospects of investment instruments offered by the Government. The Government should also educate the public on the details of implementation in repatriating the funds to be transferred to Indonesia and how to invest the repatriated funds in Indonesia. Currently, the Government is continuously conducting tax amnesty awareness campaigns for individual and corporate taxpayers in Indonesia.

Another concern is keeping confidential what the taxpayer has revealed about assets outside Indonesia. Moreover, the Government should provide a guarantee that repatriated funds will not be held up and so can be used or reinvested.

Another important point in the property sector is that the government should also be able to provide assurances that there won’t be more issues on the process of land acquisition, land transfer, land designation, or funding issues for properties in Indonesia, both from the developer community as producers and the community as consumers.

Furthermore, the Government needs to make improvements in the overall taxation system, among others, lowering the tax rate for land transfers (Land and Building Acquisition Duty or BPHTB) and imposing income tax not only on corporations, but also on individuals. These improvements will enhance the investment climate.

The Government’s initiative with the tax amnesty deserves appreciation, as it gives a positive signal for the growth of property investment in Indonesia in the future. Please also note that currently the Government is finalizing the rules on Real Estate Investment Funds (DIRE) as an alternative investment instrument, which can also be used to store the repatriated funds.

The article was prepared by Al Hakim Hanafiah (partner) and Trijoyo Ariwibowo (associate)