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