With the amendments in taxation and new listing guidelines, the Indonesia government is looking at developing its Real Estate Investment Trusts (REITs) market to boost property and infrastructure development in the country.
The move is to get Indonesian companies to list their REITs in the home country instead of them approaching capital markets abroad, such as in the Singapore Stock Exchange. Estimates suggest that REITs valued at Rp 30 trillion (approx $2.2 billion) by Indonesian firms has listed on the Singapore bourse.
Indonesian property companies used to create a subsidiary to turn their real assets into underlying assets for REITs securities and access global capital markets.
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According to Finance Minister Bambang Brodjonegoro, the government would publish the finance minister’s regulation (PMK) on tax reduction for real estate companies next week, to officially scrap the double taxation practice on REITs.
He said, till recently, the tax department collected income tax from property developer and special purpose company (SPC) who issue REITs with underlying the apartment or real estate business. With the new regulation, Bambang said, the government will ease income tax at SPC level—currently 15 per cent—and only collect at the property developer level.
“In terms of REITs, we calculate (consider) the developer and SPC as a single entity. Thus, the dividend paid by the SPC to the REITs investor is not a tax object anymore,” he said.
If the underlying assets, such as land and buildings, were sold to the REITs or through a subsidiary such as the SPC, then they would not be subject to any final income tax, he clarified.
Mulaiman Hadad, Chairman of Financial Services Agency (OJK), said, the agency will roll out the new rule for listing REITs in Indonesia.
According to him, there is a large number of property developers, waiting to list their REITs in Indonesia.
“The rule is ready to implement next week after the PMK (regulation) on the tax income released.A lot of property developers have shown their interest and the potential amount could be bigger than Singapore market,” he said.
Director General for tax Sigit P Pramudito said, the real estate industry players have welcomed the new policy.
Indonesia tax office estimates that there be a shortfall of Rp 150 trillion ($10.95 billion) in tax revenue this year due to slower economic growth and Rupiah depreciation.
He said, the economic slowdown and strong dollar impact collections this year. The department was hopeful of reaching the target through measures like special tax policy and amnesty and use of technology.
The government is targeting 16 per cent increase in tax revenues in the Budget for 2016 to Rp 1,546.8 trillion. Sigit hopes the government could implement the tax amnesty law to boost adding tax revenues Rp 60 trillion in this year. A tax amnesty draft bill is under discussion currently in parliament.
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