Reconstructing Property Tax Regulation under Fiscal Decentralization: Towards a Framework of Fiscal Equity and Local Tax Autonomy in Indonesia

Abstract

Abstract Fiscal decentralization has become a central component of Indonesia’s governance reform, with the decentralization of the Rural and Urban Land and Building Tax (PBB-P2) intended to strengthen local fiscal independence and improve public service delivery. Despite these objectives, significant challenges remain regarding local tax autonomy, fiscal equity, and the effectiveness of property tax administration. This study examines the adequacy of Indonesia’s current property tax regulatory framework within the fiscal decentralization regime and proposes a reconstructed legal framework capable of strengthening both fiscal equity and local tax autonomy. Employing normative legal research, the study utilizes statute, conceptual, comparative, and historical approaches to analyze constitutional provisions, legislation, and legal principles governing fiscal decentralization and property taxation. The findings reveal that the existing framework only partially fulfills the objectives of fiscal decentralization because local governments continue to exercise administrative responsibilities without corresponding regulatory discretion. Furthermore, disparities in regional fiscal capacity, inconsistencies in property valuation, and weaknesses in tax administration undermine both equitable taxation and effective local revenue mobilization. These shortcomings demonstrate that the current legal framework has not successfully balanced fiscal authority with fiscal responsibility nor adequately accommodated regional differences in revenue-generating capacity. In response, the study proposes a reconstructed property tax framework based on the principles of fiscal federalism, local autonomy, fiscal equity, subsidiarity, and good governance. The proposed model incorporates expanded local discretion in property tax administration, equity-oriented mechanisms to address regional disparities, and the modernization of tax governance through digital cadastral systems and GIS-based valuation technologies. The study contributes to the literature by developing an integrated normative framework that reconciles local fiscal autonomy with fiscal equity and offers a legal model for strengthening decentralized taxation and sustainable local finance in Indonesia.