Decentralisation of the Property Tax in Indonesia

Property taxes have been identified as a source of public income whose potential is currently underused by many countries. Subnational levels of government in particular are often unable, or unwilling, to increase their collection efforts. Indonesia has recently decentralised the property tax to the local level, but has this led to a better use of the tax potential from this source? The paper presents the findings from a project implemented in cooperation with the Indonesian Ministry of Finance. Preliminary evidence suggests that those local governments that took over the responsibility in 2013 or before have in fact succeeded in collecting more taxes from this source. However, taking a closer look at seven case studies reveals that local governments are still far from tapping the full potential of the property tax. Most importantly, they shy away from the political costs associated with a more active revenue mobilisation.