Govt Drops Double Taxation Rule for REITs
Jakarta. The Indonesian government revealed its fifth stimulus package on Thursday in a bid to prop up the economy by, among others, scrapping double taxation imposed on companies called real estate investment trusts to improve property investment.
The package was announced by Cabinet Secretary Pramono Anung, Coordinating Minister for Maritime Affairs Rizal Ramli, Chief Economy Minister Darmin Nasution, Bank Indonesia governor Agus Martowardojo and Financial Services Authority (OJK) chairman Muliaman D. Hadad.
It also includes a revaluation of assets for state-owned enterprises and incentives for shariah lenders.
“The Finance Ministry will issue a regulation about the scrapping of double taxation on real estate investment trusts. The point is, people have been operating REITs since 2007 and the regulation on the capital market is ready,” OJK chairman Muliaman D. Hadad said on Thursday.
REITs are investment companies that own, operate and profit from real estate through property or mortgages. They are often traded in major exchanges like a stock. REITs first gained gained popularity in Japan in 2001 before spreading through Asia.
“A mall in Solo [Central Java] is currently the underlying asset of a REIT operating in Indonesia. I think we will see more REITs in the country after [the implementation of] this tax incentive,” Muliaman said.
“This [policy] is important because the potential is big. We have underlying REIT assets worth more than Rp 30 trillion [$2.2 billion] in Singapore.”
In the past, property firms would create a subsidiary called a special purpose company (SPC) to turn their real assets into underlying assets for REIT securities. The government used to treat a REIT and SPC as different entities and as different taxpayers, hence the double taxation.
“We treat them as one [entity] now so we won’t impose income tax for SPCs,” Bambang said. “Thus, the dividend paid by the SPC to the REITs [investors] is no longer an object of taxation.”
Still, one analyst from the Center for Indonesian Taxation Analysis (CITA) said the move to scrap the double tax would not show any short-term effects.
“It would have a medium-term effect that would be rather small but could stimulate the property market,” said CITA executive director Yustinus Prastowo.
