Jakarta. In a bid to boost economic growth, the government is planning to subsidize value-added tax on houses priced at the maximum of Rp 5 billion ($313,500), up significantly from the previous cap of Rp 2 billion.

According to the Secretary of the Coordinating Ministry for Economic Affairs, Susiwijono Moegiarso, the final decision regarding the property incentive range is still under discussion with the Finance Ministry. 

"After discussions with the Coordinating Minister for Economic Affairs, Airlangga Hartarto, we are inclined to promote this expansion, so it's not just Rp 2 billion, but the exact figures are still subject to further discussion and may reach up to Rp 5 billion," he said in Jakarta on Monday.

Despite extending the incentive to property purchases of up to Rp 5 billion, he clarified that the incentive amount would still be based on a property price of Rp 2 billion.

"For instance, if you acquire a house for Rp 4 billion, Rp 2 billion will be VAT-exempt, while the remaining Rp 2 billion will be subject to VAT," Susiwijono explained.

Currently, an 11 percent VAT is levied on any house purchase in Indonesia, posing a substantial hurdle for first-time buyers.

According to Susiwijono, providing this incentive is part of the government's efforts to maintain economic growth by stimulating consumption, especially amidst global uncertainties. The property sector is receiving VAT DTP incentives due to its significant contribution to gross domestic product (GDP). 

Previously, Airlangga said that President Joko "Jokowi" Widodo has exempted VAT for house purchases below Rp 2 billion until June 2024. Jokowi unveiled the tax incentive at the BNI Investor Daily Summit 2023 last week. 

"The President has instructed that VAT for house or property purchases under Rp 2 billion will be fully borne by the government until next June," said Airlangga.

After that period, the government will only cover 50 percent of VAT for houses priced below Rp 2 billion. Additionally, the government will provide administrative assistance of Rp 4 million for low-income households (MBR) to purchase homes until 2024.

The incentive is expected to invigorate the housing sector, which had previously witnessed a 0.67 percent contraction. Projections suggest that this sector could contribute as much as 14-16 percent to the GDP in 2023, generating employment opportunities for 13.8 million individuals. Additionally, the housing sector plays a significant role in tax revenue, contributing 9.3 percent, and regional revenue, accounting for 31.9 percent.

Airlangga said he is confident that these incentives will contribute to reducing the housing backlog and meeting the demand for 12.1 million homes. 

"We anticipate that this measure can effectively address the backlog. We will monitor the progress over one year, with the hope that the backlog can be successfully resolved," stated Airlangga.