Fiscal ties blamed for local levies

Fiscal ties blamed for local levies

JAKARTA (JP): Businesses will continue to be hindered by
countless levies as long as the fiscal relationship between the
central government and the local administrations remain
arbitrary, panelists and House members said at a seminar
yesterday.

"The central government still holds 93 percent of the taxation
capacity despite the enactment of Law No.5/1974 on local
autonomy," said Birong S. Tambunan, the secretary of the
directorate general on regional autonomy at the ministry of home
affairs.

The drive to streamline local levies cannot therefore be
separated from the need to improve the fiscal relationship
between the central government and the local administrations,
Tambunan told seminar participants. The seminar was organized by
the Center for Fiscal and Monetary Studies, the research arm of
Yayasan Bina Pembangunan.

The government recently announced that levies and other fees
collected by both the central government and the local
administrations would be realigned to cut down what
businesspeople have criticized as the exorbitant cost of doing
business in Indonesia.

Foundation chairman B. Wiwoho said the seminar was designed to
analyze the impact of levies on the cost of doing business, as
well as gather input on how to restructure the local tax and
retribution maze.

Wiwoho cited several instances whereby levies abolished by new
tax laws were still collected by some local administrations.

Tambunan and another panelist, Mubha Kahar Muang of the House
Budgetary Commission, argued that corruption contributed more to
the cost of doing business than local taxes, levies and
retributions.

"The biggest costs are incurred by the kickbacks or illegal
levies extorted by officials who collect the sanctioned local
levies and taxes," Muang said.

Retributions

To support her argument, she said the proportional share of
local taxes and retributions in the total revenues of provincial
administrations averaged only 31.01 percent in the 1994/1995
fiscal year.

"Their contribution to the revenues of district
administrations is much smaller, averaging only 11.24 percent,"
she added.

The government recently recorded five taxes and 58
retributions collected by provincial administrations, and 36
taxes and 134 retributions collected by district administrations.

Muang said the number of retributions is so high at the
district level because district administrations depend on
retributions for more than 54 percent of their revenue.

Tax Director General Fuad Bawazier, one seminar panelist,
complained that the high incidence of local retributions not only
caused economic distortions but also stood in the way of the
national tax drive.

Mistake

"People often mistake retributions for taxes," Fuad said.

Fuad said taxpayers burdened by local taxes and levies will
balk at paying national income tax and value added tax.

"If the public is continuously faced with so many kinds of
local taxes and retributions they will find it difficult to
distinguish legal taxes from the illegal payments demanded by
officials," Fuad pointed out.

He added that retributions collected by local administrations
are extraneous because they are not payment for a service.

Fuad admitted, though, that the fiscal relationship between
the central government and the local administrations had to be
improved before the local charges could be dropped.

Aberson Marle Sihaloho, deputy chairman of the House Budgetary
Commission, hinted that the current fiscal relationship could
cause political disillusionment in the provinces.

"The absence of fair inter-governmental fiscal relations not
only will worsen the business climate as a result of the
continued proliferation of local levies but will also heighten
regional political resentment," Aberson cautioned. (vin)

Fuad -- Page 11