DBH Plus: Seeking Fiscal Justice for Indonesia's Mining Sector

Discussion regarding the Natural Resource Revenue Sharing Fund (DBH SDA) for mining has resurfaced in various producing regions. The most frequently raised issue remains the same: regions feel the share they receive is not yet commensurate with their economic contribution or the various social and environmental consequences they must bear. East Kalimantan Governor Rudy Mas’ud, for example, once mentioned that East Kalimantan contributed approximately Rp110 billion in fixed fees and Rp34.55 trillion in royalties, while the amount returning to the region was around Rp21 billion and Rp8.56 trillion respectively. In Central Sulawesi, Governor Anwar Hafid has also repeatedly expressed dissatisfaction with the DBH portion when linked to the social and environmental impacts felt by the community. Recently, the government also stated that hundreds of regional administrations are experiencing difficulties paying employee expenditure due to adjustments in Transfers to Regions (TKD). Some of these are mineral-producing regions. It is unsurprising, therefore, that the most frequently heard demand is that the DBH must be increased. This demand is very understandable. However, the more I examine this debate, the more I feel the problem may not stop at how much DBH the region receives. If the region’s proportion must be increased, whose share should be reduced? By how much? And will the party whose share is reduced simply accept it? On the other hand, the central government also criticises the quality of regional spending, which is considered not always productive, effective, and long-term oriented. Perhaps because of this, the debate on DBH fairness needs to look at this issue a little further. Conceptually, Indonesia actually has a foundation that is quite pro-region. The mining DBH SDA comes from Non-Tax State Revenue (PNBP), mainly royalties and fixed fees. Eighty per cent is allocated to regions and 20 per cent to the central government. From the regional portion, 16 per cent is allocated to the province, 32 per cent to the producing regency/city, and 32 per cent to other regencies/cities within the province as part of the fiscal equalisation mechanism. So, why does criticism continue to emerge? There are at least two important issues to discuss. First, nominal limitations. Because the DBH only comes from royalties and fixed fees, the revenue shared indeed has a limit. Indonesia has implemented progressive royalties that increase with commodity prices or quality. However, for many producing regions, this mechanism is still considered not to fully reflect the economic value and profits generated from mining activities. Second, the block grant design. Flexibility in the use of funds is an important part of fiscal decentralisation. However, in the context of mining-producing regions, this flexibility also has consequences. DBH enters as general regional revenue and then competes with various other spending needs. The link between revenue from extractive activities and investment for environmental recovery, infrastructure development, human resource quality improvement, and post-mining economic transformation is ultimately not always clearly visible. Therefore, perhaps it is time to slightly shift the discussion on DBH. Not merely whether the DBH needs to be increased, but how to increase the DBH while strengthening its function as a development instrument for producing regions. One interesting reference is the Canon Minero in Peru. Unlike Indonesia’s DBH SDA, which comes from PNBP, the Canon Minero originates from 50 per cent of corporate income tax revenue from mining companies, which is then redistributed to producing regions through a tiered mechanism. This is not a new tax, but a rearrangement of existing tax revenue distribution so that the economic benefits of mining are felt more by producing regions. What is interesting is not only the source of funds but also how the funds are used. The Canon Minero applies an earmarking mechanism: its revenue is directed towards public investment, infrastructure development, regional capacity building, and long-term development projects. The funds are not used for routine spending or government operational expenditure. Thus, the rent from the mining sector is consciously converted into public assets that provide cross-generational benefits. Peru’s experience certainly does not have to be duplicated exactly. However, perhaps it is time for Indonesia to start thinking about the next phase of mining fiscal policy. Not by replacing the existing DBH scheme, but by supplementing it with an additional instrument. I imagine a DBH Plus scheme. The DBH sourced from royalties and fixed fees is maintained as a block grant to preserve regional fiscal flexibility. At the same time, the government could consider an additional mechanism sourced from a portion of mining companies’ corporate income tax, with its use earmarked for future-oriented investment. This approach answers two problems at once. The funds received by the region increase, but their use also becomes more targeted. Mining rent does not stop as additional regional income but is converted into infrastructure, environmental recovery, education, human resource strengthening, local economy, and preparation towards a post-mining economy. In a broader perspective, this idea is not merely about fiscal transfers. It speaks about how natural resource rent is transformed into regional development capability. At the same time, the division of roles between the state as the owner of natural resources and the state as a tax authority can be clarified.