**1. Introduction**

Investment in the property sector has constantly grown as evident from the variety of products promoted at a large scale through various media channels in 2019. Such growth was generally expected due to the promising return on investment in the sector and the fact that properties are considered long term assets due to its permanent nature and the considerable lifespan of the property attached on it [1]. The price point of land parcels in Indonesia increases by 15–20% per annum [2]. Survey of residential properties price conducted by the Bank of Indonesia indicates a positive trend of property sales growth up to 13.95% in 2021.

There are several reasons as to why Indonesia is named one of the best location for property investment. To begin with, the political and economical stability in Indonesia is relatively conducive in improving foreign investment climate as well as the involvement of the Government in anticipating the rapid development by

enacting the Ministry of Public Works and Residences No. 11 Year 2019 concerning Pre-Agreement System of Sales and Purchase of Homes on July 18th, 2019. Secondly, the population's needs for residential properties is very high, in proportion with the growing population of Indonesia. Based on the data collected by the Centre of Statistics (Badan Pusat Statistik/BPS), the population of Indonesia has reached 275 million in 2022. Such growth automatically leads to increasing needs in the property sector, particularly for homes; the demand for development of strata title/ apartment buildings, shopping center, offices, and other utilities [2].

Property is something that can be owned or anything that can be considered possession. Meanwhile, real property translates to all interests, benefits, and rights derived from the ownership of land and buildings as well as all renovation works on the building concerned [3].

The most common means of property transfer is through sale and purchase, however the Law No. 5 Year 1960 concerning Basic Agrarian Principles mentioned of another means i.e., property exchange, which, as is the case with sale and purchase, shall be proven through a deed made before an authorized Land Deed Officer. The same Law also regulated the various rights over land available in Indonesia, which can be possessed individually, shared among several people, and/or by certain legal entity.1

Exchange of land and/or other properties has very rarely occurred in Indonesia since very few understand the implementing procedure and the taxes imposed on the transaction. However, in order to fulfill the needs and demand for property exchanges, the State is present to govern the implementation and tax reporting procedure by releasing the necessary regulations as well as appointing the authorized officers, among others the Land Deed Officials, Directorate General for Taxation, and Regional Government officials.

Exchange of properties is regulated in Article 1541 of the Indonesian Civil Code (ICC) ICC, which define exchange as [4]:

*An agreement through which two parties binding themselves to give certain goods reciprocally in exchange for another.*

Article 1542 of the ICC regulates that the object qualified for exchange of properties are all goods, both movable and immovable, land and building included [4]. The transfer of rights over land and building through property exchange shows of a voluntary legal action by one party along with another with the intention to reciprocate in giving one's possession, therefore such transfer of possession is known and desired by all parties involved in the exchange of properties.

The income received from the transfer of rights through properties exchange by individuals or legal entities, from one to another, shall be subject to final income tax by the Central Government through the Local Office of Tax Services, as regulated in Article 4(2) of the Law No. 7 Year 1983 concerning Income Tax, which has been amended several times, the last one was done through the Law No. 36 Year 2008 [5]. Also for each acquisition of rights over land and building, the acquiring person (individual and/or legal entity) is subject to land and building rights acquisition duty (hereinafter referred to as "acquisition duty"). In a sale and purchase transaction, the first is commonly referred to as buyer's duty and the latter is referred to as seller's duty. While in a properties exchange, both parties are subject to both income tax *and* acquisition duty. The underlying philosophy for tax collection is the people's

<sup>1</sup> Indonesia, Law No. 5 Year 1960 concerning Peraturan Dasar Pokok-Pokok Agraria, Article 4.

#### *Analysis of Transfer Tax Imposition on Properties Exchange in Indonesia DOI: http://dx.doi.org/10.5772/intechopen.112430*

participation in boosting development and welfare, as well as prosperity through State income generated from tax collection [6].

The income tax rate imposed on individuals or entities receiving/ obtaining income from the transaction through properties exchange as regulated in Article 2(1) of the Government Regulation No.34 Year 2016 concerning Income Tax on Income Generated from the Transfer of Land and Building Rights as well as the Contract to Sell and Its Amendments is 2.5% of the agreed upon gross value of transaction.

The acquisition duty on the exchange of properties is imposed based on the acquisition value of taxable object (*Nilai Perolehan Objek Pajak*/NPOP), which essentially is the mutually agreed upon price. Where such value cannot be determined or is below the regionally-set tax object sales value (*Nilai Jual Objek Pajak*/NJOP), then the basis to impose the above taxes is the regionally-set value. In Article 47(1) of the Law No. 1 Year 2022 concerning the Financial Relations between Central and Regional Government mentioned that the tariff imposed as acquisition duty is set to be at a maximum of 5%. Acquisition duty due to exchange of properties becomes an impending obligation on the effective date as shown in the exchange deed [7]. Acquisition duty is essentially the main source of regional tax generation. However, there remains also some hindrances in optimalizing acquisition duty generation due to the inconsistency of data presented as the basis for imposing acquisition duty as compared to the real market/transaction value.

Article 45(5) of the Law No. 1 Year 2022 concerning the Financial Relations between Central and Regional Governments elaborates that the NPOP is deducted by the non-taxable acquisition value of taxable object (*Nilai Perolehan Objek Pajak Tidak Kena Pajak*/NPOPTKP), which is regionally-set at Rp. 80.000.000,- for the first acquisition of land rights by the respective tax subject in the region of Jakarta, where BPHTB becomes due. This is regulated in the regional regulations, hence the different NPOPTKP across regions as set by the respective regional regulations.

In an existing case of rights transfer in Indonesia, a house with regionally-set NJOP of Rp. 8.000.000.000,- is exchanged with 2 (two) units of shophouses with NPOP amounting at Rp. 2.000.000.000,- per unit, in addition to cash amounting Rp. 4.000.000.000,-, where the acquisition duty imposed for the acquisition of the second shophouse unit is deducted by the regionally-set NPOPTKP amounting Rp. 80.000.000,00,- (amount applicable in Jakarta).

This went against Article 46(5) of Law No. 1 Year 2022 concerning the Financial Relations between Central and Regional Government, which elaborates that the deduction by NPOPTKP is applicable only for the first rights acquisition in each year, meaning that the deduction by NPOPTKP is not actually applicable to calculate the acquisition duty for the second and all following unit(s) attained in the same year. Just as well, the capital gain of Rp. 4.000.000.000,- in cash due to the properties exchange is not subject to income tax. This went against the Law as mentioned in Articles 4(1) and 4(2) of Law No. 36 Year 2008 concerning the Fourth Amendment on Law No. 7 Year 1983 concerning Income Tax, which regulates that taxable objects are income i.e., any increase in economic capacity attained in any form by certain tax subject which can be ploted for consumption or to further increase the wealth of the tax subject concerned, including additional cash income from an exchange of rights over land and building.

Therefore, this research aims to analyze the legal protection due for the public where an error in tax calculation is made by the authorized officials from the Central Government and the Regional Government Institution. The analysis elaborated further in this text stemmed from a comprehensive research concerning past dispute

settlements which shall result in reductions in tax generations due to the mistakes of tax miscalculation as well as the negligence of the authorized tax officers in supervising tax filing.
