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)

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