Understanding Progressive Taxation on Idle Land in Indonesia: An Overview of Implementation and Impact

Introduction

Land is an invaluable resource in Indonesia, serving not only as the foundation for residential and commercial infrastructure but also as a critical investment avenue. However, the accumulation of unused or "idle" land---often held for speculative purposes---has led to increased land prices, making it difficult for many Indonesians to afford property. To combat these issues, Indonesia has introduced a progressive tax on idle land. This policy aims to curb land speculation, reduce inequality in land ownership, and encourage productive land use. Let's explore how Indonesia's progressive tax policy on idle land works and what impact it could have on the country.

Why Focus on Idle Land?

In many Indonesian cities, especially in the capital city of Jakarta, large portions of land remain unused. Speculators and investors purchase land, hold onto it without developing it, and wait for its value to increase. This practice restricts land availability, drives up prices, and can lead to unsustainable urban expansion. For the general population, this makes land acquisition increasingly difficult, particularly for lower- and middle-income families. Idle land also contributes less to the local economy and may hinder infrastructure projects that require accessible land.

What Is a Progressive Tax on Idle Land?

The progressive tax on idle land is structured to impose higher tax rates on land that remains undeveloped over time. The idea is straightforward: the longer a parcel of land remains idle, the higher the tax rate applied to it. This progressive tax rate increases as time passes, pressuring landowners to either develop or sell the land rather than leaving it idle.

Legal and Policy Framework

Indonesia's approach to taxing idle land includes both national legislation and regional regulations. Governor Regulation No. 41 of 2019, issued by the government of DKI Jakarta, is an example of local-level regulation that tackles idle land within the city's main areas. This regulation mandates that property taxes for idle land along key Jakarta roads can be increased by up to 200%. The aim is to encourage owners to use the land or convert it to productive green spaces.

Furthermore, the country's overarching tax policies, such as the Regional Taxes and Regional Levies Law (Law No. 28 of 2009), support progressive land taxation by empowering local governments to set tax rates on property, including idle land. Under this framework, local authorities can impose incremental tax rates depending on land conditions, ownership patterns, and market demand.

 How the Progressive Tax Is Applied

The progressive tax on idle land considers several factors to determine the rate, including:

1. Land Ownership Duration: The length of time the land has remained idle influences the tax rate, with higher rates applied as time passes without development.

2. Location and Type of Land: Idle land in prime areas, such as those along main city roads, is subject to higher tax rates. This policy is intended to encourage the productive use of high-value land, especially in densely populated urban areas.

3. Purpose of Ownership: Land owned by individuals or entities for investment purposes may be taxed differently based on whether it is utilized, supporting a distinction between speculative holdings and legitimate business operations.

By implementing these factors, the progressive tax framework can effectively encourage landowners to develop their property or sell it to those who will.

 Potential Impact of the Progressive Tax on Idle Land

The progressive tax on idle land has several potential benefits for Indonesia:

- Discouraging Speculative Holdings: By making it costly to hold idle land, the tax discourages speculative investments and encourages landowners to sell or develop the property.

- Increasing Land Accessibility: As land becomes more accessible, property prices may stabilize, making it easier for middle- and low-income families to afford housing and for businesses to acquire land for productive use.

- Supporting Government Revenues: Progressive taxes on idle land create a valuable source of income for local governments. These funds can be reinvested into community infrastructure, urban development projects, and public services.

- Environmental and Social Benefits: Idle land, when repurposed for green spaces or public use, can enhance the environment and improve quality of life for city residents. The tax structure provides an incentive for landowners to convert vacant land into green areas or public parks.

 Challenges to Implementation

Despite its potential, implementing a progressive tax on idle land has its challenges:

1. Data and Compliance: Tracking land ownership and ensuring accurate reporting of idle land status requires a robust land management system. Administrative inefficiencies may hinder accurate assessment and enforcement of progressive taxes.

2. Market Impact: Some argue that the progressive tax could deter investors from entering the real estate market, potentially affecting the broader economy. Additionally, landowners with legitimate reasons for leaving land idle may face undue tax burdens.

3. Fair Application: Applying the tax progressively and fairly across different regions and types of land can be complex, especially given the wide range of property values and land uses in Indonesia.

4. Resistance from Speculators: Speculators and large landholders may resist the tax, using legal avenues to minimize tax liabilities or lobbying against higher rates.

 Lessons from Other Countries

Indonesia's progressive tax system has drawn inspiration from other countries with similar policies. In South Korea, for example, a progressive tax on land held for speculative purposes has helped curb land hoarding and make property more accessible. China also limits idle land to specific periods, after which rights can be forfeited if development does not begin. These cases demonstrate that progressive taxation can be a powerful tool when coupled with robust enforcement and clear regulations.

 Conclusion

The progressive tax on idle land in Indonesia represents a thoughtful approach to managing land resources, curbing speculation, and promoting equitable land use. While challenges remain in implementation, this policy could positively affect the property market, social equity, and local economies. By encouraging the productive use of land, Indonesia takes an important step towards sustainable urban development and improved housing accessibility for all.

As the progressive tax policy on idle land continues to evolve, it will be essential for the government to address challenges, improve compliance mechanisms, and ensure the policy effectively balances economic growth with social and environmental goals.

References

- Commons, J. R. (1922).  A Progressive Tax on Bare Land Values. Political Science Quarterly, 37(1), 41-68. Oxford University Press.

- Apriani, R. N., & Inayati. (2020). Alternative Policy on Progressive Tax Rate on Idle Land in the Special Capital Territory of Jakarta. Jurnal Administrasi Publik, 10(2), 127-137. University of Indonesia.