Abolishing levies

At the stroke of a pen, Minister of Home Affairs R. Hartono has abolished 73 levies and taxes imposed by provincial, regency and city administrations throughout the country. In two separate decrees signed last month, the minister also ordered all local administrations to terminate any other forms of levies and taxes not covered under the 1997 Law on Regional Taxes and Levies.

The move is expected to end, once and for all, the practice by local administrators of imposing levies, legitimate or otherwise, for various services rendered. The sheer number of levies abolished, as listed in one of the decrees, indicates that these charges have gotten out of control for far too long. Some of these levies were downright ridiculous. And the illegitimate charges were usually nothing other than official extortion.

These levies have been a source of complaint, not only by businesspeople, but also by citizens. They have made everybody's lives miserable. Businesspeople refer to these charges as "invisible costs" which they incorporate into their overall operational costs and pass on to consumers. They broke their silence, and their complicity in this scheme, when they came under strong pressure to compete globally. In a competitive environment, these "invisible costs" have become a big liability and have undermined their own survival. And since businesses have come under pressure to pay more humane wages to their workers in recent years, their demand for the abolition of these levies has become louder.

The government has attempted to phase out these taxes and levies, but each time it has met resistance from the powerful bureaucracy. Local administrators have grown to rely on these charges for their operation or to supplement their income. Like the campaigns against corruption, the drive to abolish levies met a stumbling block.

What makes this latest campaign to abolish levies different from past ones is not so much the political will as what is at stake if the government fails to live up to its promise. The elimination of these levies is part of the latest economic reform package negotiated with the International Monetary Fund (IMF) to lift the nation out of its economic doldrums. And it is not so much the US$43 billion in support that the IMF has promised that is at stake. What is being tested is the credibility of the government in the eyes of the domestic and international public.

For better or for worse, it appears that real and meaningful changes in this country, like the abolition of these levies, hinge more on external, rather than internal, pressures. This must speak volumes about the ineffectiveness of our political system and structure. One often wonders what it will take to forge the political reforms this country badly needs.

For the moment, we can take comfort that when it comes to abolishing levies, the message has finally sunk in on the government. Last week, President Soeharto ordered Hartono to make sure that "these levies don't happen again". Hartono has also said that he will send teams to the regions to ensure compliance. At least one cannot complain about a lack of political will.

But if past experiences are any lesson, political will alone is not enough to break the established levy systems of local administrations. Replacing their revenues with a local gasoline tax and higher tax rates for the transfer of property titles will not likely make up for lost funds. The Jakarta city administration, for example, has slashed its 1998/1999 budget 35 percent because of projected revenue shortfalls.

The abolition of business levies must also be accompanied by a restructuring of local authorities' organizations and their finances. These officials do provide valuable services for the community and are at the frontline of government operations. Their operation must be based upon solid financing schemes. Even within the parameters of current local government regulations, there is room for innovation to create a more effective and efficient administration. To borrow an overused phrase, we need to reinvent local government.

Without a complete overhaul of local administrations and their finances, the government's latest campaign could be short-lived and doom to fail, just like past campaigns. The difference this time is that the government, should it fail, would lose all of its remaining credibility, while the international community would pull the rug from under us. And that would be a very high price to pay.