Thu, 29 Jul 2010
It is mind-boggling to learn of the complete ignorance on the part of the Home Ministry regarding the thousands of regional bylaws on taxes and user charges/retributions throughout the country that are greatly inimical to investments and regional trade.

As of last year, the Finance Ministry recommended the Home Ministry revoke more than 4,885 regional bylaws because they contravene the national laws, but only around 1,835 of the total were annulled.

Hence, there are still more than 3,000 regional bylaws, which remain in force even though they contradict national laws and, yet more damaging, hurt private investment and regional trade.

Yet more flabbergasting is that the Home Ministry has remained mired in bureaucratic inertia even though its leader since last October, Gamawan Fauzi, had previously been the regent of Solok, West Sumatra, and then the governor of that province before he was appointed to the Cabinet.

The many years Fauzi had spent in governing a regency and a province should have taught him to realize how crucial investment and trade for regional economies is. He should have been fully aware that it is private investment, not the public administration, that generates jobs. It is jobs that generate wages and it is wages that generate purchasing power for the people to buy goods and services.

Hence, Fauzi must have realized how urgent has it been for his ministry to implement the recommendation of the Finance Ministry because it is the latter that is technically competent to analyze whether regional bylaws on taxes and user charges/fees contravene the national laws or not.

The big question is why the Home Ministry has not shown any sense of urgency to act on the Finance Ministry’s recommendation. It instead let the business-unfriendly regulations hurt business operations.

Most of the regional bylaws on taxes and user charges do not make any sense in that there is no reason whatsoever for regional administrations to charge user fees or collect local taxes from the public services stipulated in the bylaws. They are simply misguided regulations issued by narrow-minded administrations to raise revenue without due regard to their damaging impact on the local economy as a whole. These bylaws have unnecessarily increased the costs of doing business.

Regional administrations cannot claim lack of knowledge or misinterpretation of national laws as the reason for the promulgation of the faulty bylaws. The misguided bylaws are simply the products of a rent-seeking mentality.

The new 2009 Regional Taxes and User Fees Law approved by the government last year stipulates clear-cut provisions on the division of taxing power between the national, provincial and regency and municipal governments. The new law also stipulates only 16 types of taxes and user fees regional administrations are authorized to impose. Eleven are authorized for regency and city governments where local autonomy is anchored, with the other five mandated for provincial administrations.

It is therefore most urgent and imperative for the Home Ministry to act soon on the Finance Ministry’s recommendations for the annulment of the more than 3,000 bylaws on regional taxes and user charges that contravene the national laws and are inimical to businesses.

The concerted efforts undertaken by the central government to woo new investment would be rendered less effective if regional administrations remain hostile to businesses because most resource-based investment projects are located outside Jakarta.



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