Draft regional tax revision to ensure business certainty
Draft regional tax revision to ensure business certainty
Rendi A. Witular, The Jakarta Post, Jakarta
The government is drafting a revision to regional tax and user
charges law that contain key items that promise more legal
certainty for the business community when dealing with seemingly
unpredictable regional administrations.
On the other hand, the draft law, a copy of which was made
available to The Jakarta Post, contains fewer incentives for
businesses -- with several policies on tax rates likely to hurt
certain industries.
"The draft law is primarily aimed at enhancing the central
government's supervision over local administrations when issuing
bylaws that could conflict with the public interest and hurt the
business community," said an official from the ministry of
finance who is familiar with the draft.
The draft law is being formulated by the ministry's Economic,
Financial and International Collaboration Studies Agency
(BAPEKI).
Based on the draft -- the third since 1997 -- a local
administration will be required to submit their regional bylaws
within seven days to the Ministry of Home Affairs for review and
approval.
The Ministry of Home Affairs will then seek a recommendation
from the Ministry of Finance on whether the content of the bylaw
complies with existing laws and has not violated higher laws and
regulations, or is against the public interest.
If the Ministry of Finance rejects the bylaw, the President
must then issue a decree annulling it no later than 60 days from
the day the Ministry of Home Affairs received it.
The local administration must revoke the bylaw within seven
days of the issue of the presidential decree.
At present, the central government has difficulties in trying
to annul bylaws due to the absence of a higher legal instrument.
Due to the lack of a stronger legal instrument and clear
sanctions, most local administrations have refused to comply to
central government's requests to annul their more controversial
bylaws.
Current government regulations also fail to establish a time
frame for the central government to review bylaws deemed
controversial.
Under the new draft, if a local administration refuses to
revoke its controversial bylaw, the central government has the
right to delay and reduce the disbursement of the so-called
"fiscal balance funds", which includes general allocation funds
-- funds allocated to local governments that are set aside under
the central government's annual state budget.
According to the Ministry of Finance, the central government
has so far received some 4,574 bylaws for review, or nearly 34
percent of the total number bylaws issued by local provincial,
regency and municipal administrations.
The business community has long complained about local taxes
and user charges imposed to them after the introduction of the
autonomy law in 1999, which have created a high-cost economy.
Key items in the draft law:
* Local administrations can collect entertainment taxes from
bars, discotheques, night clubs, karaoke bars, massage parlors,
fashion exhibitions and beauty contests for a maximum of 75
percent of revenue.
* Traditional entertainment and arts exhibitions will be taxed
no more than 35 percent.
* Regency/city administrations can collect underground water tax
to a maximum rate of 20 percent.
* Regency/city administrations can collect environment taxes to a
maximum of 0.5 percent of production costs.
* Tax on automobiles will be reduced from the current 5 percent
maximum to between 1 percent and 3 percent.
* Parking tax will be reduced from the current 20 percent to 15
percent maximum.
* If local administrations oppose a central government decision
to disallow a bylaw, they will be able to file a case with
the Supreme Court.
* Items excluded from the tax include trains, heavy
equipment, vehicles used for security and defense, garbage
dump trucks, fire brigade vehicles, and vehicles used by
diplomatic corps and international agencies.
Source: Ministry of Finance