What legal steps are required to implement Tax Increment Financing for an urban redevelopment project in Indonesia?

Question

An Indonesian city plans to use Tax Increment Financing to fund a riverfront redevelopment by pledging future local tax increments. What approvals are required under national and local law, how should the forecasting and security mechanisms be structured, and how can risks to taxpayers be mitigated through governance and oversight?

TRIMURTI LAW OFFICE · Accepted Answer

Because Tax Increment Financing (TIF) is not explicitly regulated under Indonesian law, any financing based on projected tax increments must follow the existing legal framework, particularly those governing regional financing, government cooperation schemes, and the management of regional assets and taxes. To implement TIF in Indonesia, a city must obtain approvals from the central government and the Regional House of Representatives (DPRD), establish a local legal basis (Perda), prepare prudent tax forecasting supported by strong financial safeguard mechanisms, and ensure oversight and transparency to protect taxpayers’ interests. With a robust governance structure in place, TIF can serve as an alternative financing mechanism for development without directly burdening the regional budget (APBD).

What legal steps are required to implement Tax Increment Financing for an urban redevelopment project in Indonesia?

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