The Indonesian government plans to implement a 2.4% tax on individuals building their own homes starting in 2025. This upcoming policy has sparked widespread attention, especially as it won’t just apply to new constructions but also to home renovations. So, how exactly will this tax work, and what are the specifics that homeowners need to know?
This tax policy is part of the Ministry of Finance Regulation Number 61/PMK.03/2022 on Value-Added Tax (VAT) for Self-Building Activities (PPN KMS). According to this regulation, any form of construction—whether it’s building a brand new structure, expanding an existing one, or even just renovating—will be subject to the tax. The regulation targets constructions done by individuals or entities not engaged in professional building activities, with the final product intended for personal use or for others.
One of the key details of the new tax is that it imposes a levy of 20% of the applicable VAT rate, as outlined in Article 7, paragraph 1 of the VAT Law, multiplied by the tax base.
Currently, the government’s VAT subsidy, known as VAT DTP, aims to assist individuals in purchasing homes, whether they are stand-alone houses or apartment units. For 2024, the VAT DTP stands at 11%, but starting in 2025, it is set to increase to 12%. As a result, this VAT hike will also impact the tax imposed on building or renovating homes, which will rise from 2.2% (without the VAT DTP) to 2.4% if the VAT DTP is applied in 2025.
This adjustment was confirmed by the Special Staff to the Minister of Finance, Yustinus Prastowo. He explained that the VAT rate directly affects the tax that will be applied to self-built homes.
Read also: Airfare in Indonesia Keep Rising, Here’s Why!
“If the standard VAT rate is 11%, then the self-built construction VAT rate is 2.2%, since it only applies to 20% of the total cost. With the expected VAT increase in 2025, the rate will go up to 2.4%,” Prastowo clarified in a post on X, cited on Tuesday, September 17, 2024.
However, this tax only applies to homes with a construction area exceeding 200 square meters, built within a two-year period, whether the construction is completed all at once or in stages. Homes below this size will not be subject to the VAT.
“The criteria are for homes over 200 m². Any structure below that will not be subject to this VAT,” Prastowo added.
It is essential for those planning to build or renovate their homes in the coming years to be aware of this policy. As the 2025 implementation date approaches, the tax implications for home construction and renovation could significantly impact budgets for those involved in self-construction projects. Homeowners might want to reconsider the timing of their plans to build or renovate as they may face higher costs once the new tax comes into force.
