Bappenas: Local Tax Design Can Support Sustainable Cities
JAKARTA, DDTCNews - Local taxes are not viewed merely as a source of local own-source revenue (pendapatan asli daerah/PAD in Indonesian), but can also be utilised as an instrument to support more sustainable urban management.
This is one of the key considerations in the National Urban Policy (Kebijakan Perkotaan Nasional/KPN in Indonesian) 2045 document prepared by the Ministry of National Development Planning/Bappenas. In that document, Bappenas explains that taxation aspects also influence the success of sustainable urban management.
"Taxes ... can be used [as] one of the instruments of incentives and disincentives in the context of controlling urbanisation in a more balanced and prosperous manner," Bappenas wrote in the KPN 2045, as cited on Thursday (30/7/2026).
According to Bappenas, tax regulations and local tax incentives are crucial, as taxes are generally one of the main sources of local own-source revenue, particularly for large cities.
Citing the World Bank (2019), Bappenas outlined several types of taxes with significant contributions to local revenue, including land and building tax (L&B Tax), acquisition duty on the right to land and building (bea perolehan hak atas tanah dan bangunan/BPHTB in Indonesian), hotel tax (now certain goods and services tax or pajak barang dan jasa tertentu/PBJT in Indonesian on hotel services) and restaurant tax (now certain goods and services tax on food and beverages).
As part of decentralisation, the central government awards recognition to local governments that achieve high local own-source revenue. This may encourage local governments to compete in increasing tax revenue, including through the conversion of undeveloped land into developed areas.
This is because taxes on developed land, such as housing, factories, hotels and restaurants, can generate higher revenue compared with taxes on undeveloped land, such as rice paddies and forests.
Reflecting on this situation, Bappenas reminds that the granting of local incentives and disincentives must be directed based on the achievement of local development targets, not solely on the ability to increase revenue.
"The granting of incentives and disincentives must also continue to take into account the control of land conversion that has an impact on environmental damage or diminishes local food security efforts," Bappenas wrote.
Bappenas considers that reform of tax regulations and local incentives is key for the alignment of local fiscal policies with the direction of urban development.
With this approach, local taxes would not only serve as a revenue-collection instrument, but could also support other development objectives, such as controlling urban expansion, environmental protection and more balanced urban development.
Bappenas noted that the challenges facing local governments going forward include maintaining a balance between the need to increase fiscal capacity and ensuring that revenue policies do not result in incentives that contradict sustainable development objectives. (dik)
