The Role of Government in Managing Land and Building Tax

Oleh: Teddy Ferdian, pegawai Direktorat Jenderal Pajak

In general, there are still misunderstandings among people when dealing with taxation issues. The common one is people’s view that all taxation matters are managed by the Directorate General of Taxes (DGT) as a tax authority in Indonesia. It is already becoming a common thought among the majority of people about taxation. For example, when a discussion about a new Value Added Tax (VAT) rate comes up, many people easily assume that the DGT is the institution that is responsible for this regulation or policy. Another example, when people are charged 10% tax for having dinner in a restaurant, many people also think that this is one of the DGT’s policies.

Those opinions are not wrong. As a tax authority, the DGT has responsibility for collecting tax revenue and managing tax administration in Indonesia. But, is it true that the DGT is the one and only institution that manages taxes in Indonesia?

The two examples above represent two distinct tax administrations and two distinct institutions in charge of. It is correct that the new 11% VAT rate is managed and administrated by the DGT. However, it is not correct when people think that the 10% restaurant tax is also managed by the DGT.

When we talk about taxation in Indonesia, there are two types of taxes depending on the party that manages tax administration. First, central tax is a type of tax for taxation matters administered by the DGT, the central government's tax authority. Second, there is local tax for matters of taxation that are administered and managed by local government. The VAT is an example of a central tax, while the restaurant tax is an example of a local tax.

Uniquely, there is one tax that is managed by both the DGT and the local government. We usually call it the Land and Building (L&B) Tax or Pajak Bumi dan Bangunan (PBB). There are several types of L&B tax that are managed by the DGT. There are also several types of L&B Tax that are managed by local governments.

The six sectors of L&B Tax objects that are managed and administrated by the DGT are listed below. The DGT has responsibility for managing L&B Tax in plantation, forestry, petroleum and gas mining, geothermal mining, mineral and coal mining, and other sectors. In Bahasa, we usually call it PBB Sektor Perkebunan, Perhutanan, Pertambangan Minyak dan Gas Bumi, Pertambangan untuk Pengusahaan Panas Bumi, Pertambangan Mineral dan Batubara, dan Sektor Lainnya (PBB P5L).

Local government, on the other hand, is responsible for managing and administering the L&B Tax on villages and cities, or PBB Pedesaan dan Perkotaan (PBB P2). Each of local government has its own regulations for managing this type of L&B Tax. This type of L&B tax has its own reporting and payment systems. The reporting and payment systems are different from those for the other types of L&B Tax, which are managed by the DGT. While the taxation system of L&B Tax in the DGT pursues a combination of self-assessment system and official assessment system, the taxation system in local government is still implementing a fully official assessment system.

Regarding the L&B Tax system in the DGT, the DGT provides an opportunity to taxpayers to report the condition of their L&B Tax objects. The condition of tax objects is reported using the L&B Tax objects reports form, or in bahasa we usually call it Surat Pemberitahuan Objek PBB (SPOP). Based on the reports, the DGT analyzes and calculates the value of the L&B Tax object and L&B Tax should be paid by taxpayers.

In the L&B Tax system in local government, the local government calculates the value of L&B Tax objects and L&B Tax should be paid by taxpayers based on the data in local government. The revenues of L&B Tax in local government are becoming a part of the local/regional original revenues of the local government, which will be used in developing the region. In addition to other taxes administered by local governments, such as the restaurant tax, entertainment tax, advertising tax, and retributions, the L & B Tax contributes to regional development through tax revenues.

All in all, the main concern of managing and administering L&B Tax is improving taxpayers’ compliance and optimizing tax revenues collected in Indonesia. Therefore, collaboration and coordination between two institutions have a significant role in supporting tax collection, especially regarding L&B Tax in central and local government.

As the institution with the most experience in managing L & B Tax, the DGT may share their knowledge of implementing business processes, systems, and technologies with the local government. On the other hand, the local government may support the DGT in providing data regarding L&B Tax objects administrated by the DGT.

The DGT, which is represented by tax offices, may initiate a discussion forum with local government about the condition of L&B tax objects like plantations, forestry, and mining. The synergy between the DGT and local government will bring benefits for those two institutions. As a tax authority that is responsible for collecting revenues for Indonesia, the DGT will get data and information to optimize tax potential regarding L&B Tax.

For local governments, there is also revenue sharing from the central government as a result of tax collection in their local region. Local governments may get important insights in managing L&B Tax from the DGT. All of these show the synergy efforts for the development of Indonesia and the optimization of tax revenues. All people and taxpayers also have a role to play in contributing to Indonesia by complying with tax obligations and paying taxes for a better Indonesia.

*) This article represents the author's personal views and does not represent the stance of the institution.

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