Local taxation and fees in Indonesia

9 min readJan 19, 2024

The current Indonesian local tax system is the result of refinements since the end of the Orde Baru (Suharto regime). After this time, the Indonesian constitution was largely rewritten. The second amendment to the Indonesian constitution of 1945, which was passed in August 2000, focused on local government, providing for ‘otonomi daerah’, or regional autonomy.

Suharto’s regional tax and levy law (18 of 1997) was refined in December 2000 (law 34 of 2000), allowing local governments an ‘open list’, they could tax anything they liked, subject to certain rather vague principles about harming the economy and so on.

This provision was disastrous, in that central government was ultimately forced to revoke thousands of local taxes that were excessive or inappropriate.

Law 28 of 2009 was passed replacing things with a closed list system. The closed list system means that local government can only tax things that central government has allowed them to tax, and more specifically the same named taxes apply across Indonesia, with only the rates differing (and these subject to maximums set out in law 28/2009).

Law 1 of 2022 (effective 2024) repealed 28/2009, grouping many service taxes under a single heading, and providing for an ‘opsen’ (starts 2025), allowing tax revenue to be shared between province and kabupaten/kota for certain taxation types.

Under the post-2024 opsen system, 60% of vehicle/fuel opsen revenue goes to the province and 40% to kabupaten/kota, while for mineral/stone tax it is 80% to the kabupaten/kota, and 20% to the province. It should be noted that the share is fixed, and the rate is set in the Perda of the primary recipient, not the opsen beneficiary.

Determining tax rates

Taxes are imposed by the kabupaten/kota via peraturan daerah (perda, or regional regulation) kabupaten/kota, with the exception of the vehicle/fuel taxes, cigarette tax, and surface water tax. These latter types are imposed by the province via peraturan daerah provinsi. In most cases tax rates in perda are at the maximum rates allowed by the national law. Exceptions are PBB-P2, PKB, PPJ, and BBNKB-1 (12.5% most commonly), where lower-than-maximum rates are typically imposed.

Vehicle and fuel taxes

The following vehicle/fuel taxes exist under the 2009/2024 regimes:

Pajak Kendaraan Bermotor/PKB “Motor Vehicle Tax”. Up to 2% for the first vehicle (per owner and/or address), up to 10% for subsequent vehicles.
Pajak Alat Berat/PAB — Heavy equipment/bulldozer tax — 2022 (previously a subcategory of PKB). Maximum rate 0.2%, no minimum (previously minimum 0.1%)
Bea Balik Nama Kendaraan Bermotor/BBNKB — “Motor Vehicle Transfer of Ownership Duty” — Up to 20% for first registration (i.e. on a new vehicle), up to 1% for subsequent transfers.
Pajak Bahan Bakar Kendaraan Bermotor/PBBKB “Motor Vehicle Fuel Day” — Max 10%. 50% discount for public transport.

Land transaction/ownership taxes

Pajak Bumi dan Bangunan Perdesaan dan Perkotaan — PBB-P2, or Rural and Urban Land and Building Tax — an annual tax on land ownership. Increased from not more than 0.3% to not more than 0.5%
Bea Perolehan Hak atas Tanah dan Bangunan — BPHTB — Land title transfer duty. Not more than 5%. First 60 million (at least) tax free -> increased to at least 80 million by law of 2022. For inheritance at least 300 million.

Natural resource taxes

These are taxes on the exploitation of natural resources:

Pajak Air Tanah — Ground water tax. Not applicable for religious, community farm/fishery, residential uses. Up to 20%.
Pajak Air Permukaan — Surface water tax. Not applicable for religious, community farm/fishery, residential uses. Up to 10% .
Pajak Sarang Burung Walet — Bird’s nest tax (for swallows’ nests). Up to 10%.
Pajak Mineral Bukan Logam dan Batuan — Non-metal minerals and stone tax, includes things such as clay, talc, granite, asbestos, stones. Up to 25%

Miscellaneous taxes

These are other taxes not classifiable elsewhere:

Pajak Reklame — advertisement tax, including aerial, vehicular adverts, billboards, leaflets — up to 25%
Pajak Rokok — cigarette tax — set at exactly 10% of cigarette duty

Service taxes

These are taxes on services supplied by businesses. These services might be expected to be subject to PPN, but are by reason of being taxed locally exempted from PPN (VAT). PPN is currently 11%.

Previously they were listed under 5 separate categories, but to ‘simplify’, they have been merged into one: Pajak Barang dan Jasa Tertentu (PBJT), i.e. ‘specified goods and services tax’. The tax basis is similar to PPN, i.e. the tax is added to the bill, it’s a tax on consumption, not income. Note that the five separate categories continue to exist, and regulations on say PPJ have little in common with those on restaurants — the only real significance of PBJT is that it cuts parking tax from max 30% to 10% and also cuts entertainment tax from 35% max to 10% (with some exceptions see below). This is quite significant in that previously certain areas would tax bowling alleys, cinemas, etc., at 35%, and others at 10%, whereas under the law it’s 10% across the board (excluding the luxury/sin taxes below).

Pajak Hotel — max 10%
Pajak Restoran — max 10%
Pajak Penerangan Jalan — ‘street lighting tax’, in reality a tax on electricity supplies by PLN — max 10%
Pajak Parkir — parking tax — max 30%, reduced to max 10% under PBJT (post 2024) regime
Pajak Hiburan — entertainment tax

Entertainment tax

The following activities are considered to come under the scope of entertainment:

art, music, dance or fashion performances
bodybuilding or beauty contests
cinemas
circus/acrobat/magic shows
exhibitions
horse or motor racing
sports/fitness centres
panti pijat /pijat refleksi (massage/reflexology parlours)
discos, karaoke, nightclubs, steam bath/spa
dexterity games
water, ecological, educational, cultural, snow, games, fishing, agrotourism and garden attractions — new 2022
bars — new 2022

Under the 2009 rules, entertainment tax rates were:

up to 10% — traditional arts
up to 75% — fashion show, beauty contest, disco, karaoke, nightclub, steam bath/spa, massage parlour, dexterity games
up to 35% — everything else

Under the 2022 rules that is simplified:

at least 40% and not more than 75% — disco, karaoke, bar, nightclub, steam bath/spa
up to 10% — everything else

In addition, the 2022 law allows local government to exempt certain types of entertainment or artistic expression from tax (e.g., they might exempt cultural performances).

Spa/karaoke luxury/sin tax controversy

The January 2024 ‘spa tax’ controversy is the result of incompetence and poor law making.

The legal process of making a law in Indonesia starts with a Naskah Akademik or academic manuscript. This covers the study behind the law.

The NA for the 2022 tax law was published in 2021 and provided:

[PBJT simplifies the pajak parkir (30%), pajak hiburan (multiple rates), and other taxes into one tax of 10%] however “there is still provision for local governments to set higher tax rates for entertainment activities that are luxurious in nature or that need to be controlled, such as steam baths/spas, discos, nightclubs, karaoke and bars, where the maximum rate is set at 40%”

This accords with the principle of regional autonomy set out in the constitution, in that local governments should be able to set higher tax rates on services that could be deemed problematic. There does not seem to be a specific issue with classifying ‘bars’ as ‘entertainment’ (under the 2009 law they were ‘restaurants’, although some areas still illegally taxed them higher using the entertainment tax rules).

The problem is that some unknown party changed the studied rules from ‘not more than 40%’ to ‘not less than 40% and not more than 75%’. This caused a national scandal as numerous figures said it would destroy their businesses/tourism in Bali.

Around mid-2023 the regions of Indonesia passed their new PerDa which comply with the law and were valid from January 2024. These imposed the new 40% minimum tax, and while the 40%-75% figure had been reported in the news in 2021/2022, and again in mid/late 2023, nothing was done until it actually came into effect, whereupon there were hundreds of news stories saying how outrageous it was.

This was breathtaking incompetence on the part of those who had interests in affected businesses, as this had been known for two years. (Although the greater incompetence was passing the law with this last-minute change in the first place. Laws are passed by Parliament (DPR RI) with the approval of the President.)

Ultimately the law can be repaired in various ways:

a constitutional court (MK) challenge can challenge it as a violation of articles 18 and 18A (regional autonomy), or equal rights/equal treatment provision (article 27(1)). The constitutional court can rewrite the law so that e.g., it reads ‘not more than 75%’ instead of ‘not less than 40% and not more than 75%’
the President can pass an emergency presidential regulation in lieu of law (PERPPU) . This would be effective immediately and would require approval in the subsequent parliamentary session.

Retribusi

The term retribusi comes from the Dutch word retributie, which was used to refer to local fees for services provided by local government. It should not be translated into English as ‘retribution’.

Note that as per the discussions above, local government cannot tax arbitrary services/goods, but can only impose the specific named taxes above within the specific rates given. They have more but still limited freedom to charge retribusi, which are fees for services they provide.

The list of possible categories of fees/levies are as follows (things outside these categories cannot be valid retribusi).

General service fees

health services — for puskesmas/balai pengobatan, RSUD, etc.
cleaning services — garbage collection, etc.
roadside parking services
market services
traffic management

Under the 2022 law the total number of categories of retribusi was reduced from 32 to 18.

Deleted by the 2022 law were:

Civil registry office fees (but already illegal since law 24/2013)
Gravedigging etc.
Motor vehicle inspection
Fire engine inspection
Map printing fees
Septic tank extraction fee
Liquid waste processing
Testing/weighing
Education services
Telecom tower planning services

It is not clear where some of the fees which are no longer included in 2022 are included within ‘cleaning’, however these following services were stated in the Naskah Akademik as to be funded free of charge by local government expenditure, and it’s likely all are now intended now to be free:

gravedigging etc.
testing/weighing
motor vehicle testing

Business service fees

providing place of business in form of market, grocer, etc.
providing auction facilities for fish, forestry products, etc.
providing off-road parking
providing accommodation
slaughterhouse services
port/harbour services
recreation, tourism and sport services
water crossing services
selling the output of local government businesses
exploitation of local government assets

Deleted was ‘retribusi terminal’, on the basis of reducing pungli (unauthorised charging), which is/was rife in bus stations.

Permit fees

PBG (planning permission)
Foreign worker usage
Small scale mining

The 2022 Act deletes ‘izin trayek’ (bus route permit), ‘izin gangguan’ (disturbance permit), ‘izin tempat penjualan minuman beralkohol’ (alcohol sales permit), ‘izin usaha perikanan’ (fish business permit). These fees can no longer be charged.

Legal basis

It should be emphasised that these are fees for services provided by the local government. This means that for example retribusi can’t be charged for entry to a national park (this is central government, which will charge its own entry fees (karcis masuk)), nor for a private tourist place.

In practice local governments often charge tourism retribusi on the basis of their management of a given area.

The formal basis for charging retribusi for tourism services is as follows:

“The subject of retribusi is a person who uses/enjoys services in a place of recreation, tourism and sport, provided, owned and/or managed by the local government.”

Local government in this context could refer to the provincial or to the kota/kabupaten government — it should be quite clear.

Out-dated and inappropriate retribusi

There are likely to be many retribusi still being charged contrary to law. Unfortunately judicial review to the Supreme Court might be necessary to check these. In other cases a deleted retribusi might still being charged by some local oknum (pungli). You can often confirm the valid retribusi by checking Google for peraturan daerah retribusi for the relevant area.

Offences

Under the 2022 Act:

failing to pay local taxes due to negligence can result in a fine of up to 2x the tax or up to 1 year prison
deliberately failing to pay local taxes can result in a fine of up to 4x the tax or up to 2 year prison
failing to pay retribusi results in up to 3 months prison or 3x the retribusi.

There is a 5 year statute of limitations on non-payment offences.