Fiscal decentralization<\/p>\n
A seminar last week on the impact of local levies on the
\neconomy concluded that most local administrations are ignorant of
\nthe need to implement probusiness policies because the central
\ngovernment still almost entirely holds the taxing power related
\nto main economic activities. The meeting also discovered just how
\ndependent local administrations are on fundings from the central
\ngovernment due to the absence of fair rules on intergovernmental
\nfiscal relations.<\/p>\n
The problem seems to have been exacerbated by the uncertainty
\nencountered by local administrations regarding their budget plans
\nbecause the amount of funds transferred from the central
\ngovernment is set on an annual basis.<\/p>\n
Provincial and district administrations have only a few months
\nin which to plan their annual budgets, which are implemented on
\nApril 1, because the amount of their respective transfers from
\nthe central government are disclosed only after the national
\nbudget is proposed to the House of Representatives in the first
\nweek of January.<\/p>\n
Local administrations, besides encountering budget funding
\nuncertainty, have been under pressure to expand their budgets to
\nmeet the increasing demand of their local people. The result, as
\ndisclosed at the seminar, is the proliferation of local taxes and
\nuser fees. There are now five local taxes and 58 user fees
\ncollected by provincial administrations, and 36 taxes and 134
\nuser fees levied by district administrations.<\/p>\n
However, the results of studies discussed at the seminar
\nrevealed that quite a number of those local taxes and user fees
\nare totally uneconomical, meaning that the costs of their
\nadministration and collection are much higher than the revenues
\ncollected. Still more shocking is the finding that the power to
\ncollect those taxes and user fees is mostly abused to extort
\nkickbacks. All this is obviously detrimental to economic
\nactivities, notably business development. Yet since the taxation
\nauthority is still controlled almost entirely by the central
\ngovernment, local administrations are unaware or indifferent to
\nthe need to stimulate private investment operations in their
\nareas.<\/p>\n
This attitude is strikingly different from that among local
\nadministrations in countries where the decision-making and taxing
\npower, and the responsibilities for many public services and
\nfunctions, have adequately been decentralized.<\/p>\n
Local administrations with adequate administrative autonomy
\nalways pursue probusiness policies because they fully realize
\nthat investments stimulate economic growth which in turn creates
\njobs, generates purchasing power and consequently widens the base
\nof tax revenue sources and increases the opportunities for the
\ncollection of numerous user fees.<\/p>\n
The problems described above show how imperative and urgent it
\nis for the central government to speed up the development of
\nlocal autonomy in districts. Decentralization should mean
\ndevolving both spending responsibility and revenue sources. The
\none year implementation of the development of local autonomy in
\n26 districts, selected in early 1995 as pilot projects for
\nadministration decentralization throughout the country, shows how
\nslow the process has been due to the great hesitation on the part
\nof central ministries to transfer their responsibilities to
\ndistrict-level offices. The director general for regional
\nautonomy, Sumitro Maskum, himself admitted last month that only
\nsix of the 50 steps in the process to full autonomy in the 26
\ndistricts had been completed.<\/p>\n
The central government should display a stronger political
\nwill to accelerate the development of local autonomy. The
\nexperiences of other countries that have decentralized their
\nadministration systems have proven that decentralization of
\nresponsibility brings local accountability. Local officials with
\ngreater autonomy will have a greater stake in good governance
\nsince they can clearly be identified by taxpayers and voters as
\nthe architects of success or the cause of failure. Local
\naccountability seems even more crucial for such a vast
\narchipelagic state as Indonesia.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/fiscal-decentralization-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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