Govt to provide provinces with greater tax authority

Govt to provide provinces with greater tax authority

JAKARTA (JP): Finance Minister Prijadi Praptosuhardjo proposed
on Thursday an amendment to regional tax law which would allow
provincial and regency administrations to have greater authority
in collecting tax and fixing tax tariffs.

Prijadi said that the greater tax power was needed to allow
regional governments to have more flexibility in financing their
administration once the new regional autonomy law is fully
implemented in January.

"We fully realize that with the implementation of the Law No.
22/1999 (on regional autonomy) the financial needs of the region
to run their administration and provide service to the people
will be greater," he told the House of Representatives at a
plenary session.

The bill, which will amend the Law No. 18/1997 on regional
taxes and levies could be ratified by the House before the end of
this
year.

"The existing law is considered to be lacking flexibility for
the region in collecting various taxes and levies and is deemed
to be a form of excess domination of the central government over
the region," Prijadi said.

The major components of the amendment are as follows.
* Regency administrations and mayoralties will have greater
opportunity to collect tax according to the characteristics and
the potential of their respective areas.
* The provincial, regency and mayoralty administrations can
directly issue their own rulings to collect various taxes and
levies as long as they meet certain criteria.
* The provincial administration will have the right to reallocate
tax revenue from a certain region to another region with less tax
potential within the province.

Under the existing regional tax law No. 18, the provincial
administration can only collect three types of taxes, while the
regency administration or mayoralty can collect six types of
taxes.

The existing law also stipulates that the region can only
collect a maximum of 30 types of levies.

The proposed amendment will also allow provinces to decide on
the tax and levy tariff as long as it does not exceed the maximum
limit stipulated by the country's tax law.

Under the existing regional tax law, the tax tariff in the
provinces is uniform and is decided by the central government.

The plan to implement the regional autonomy law next year has
raised various concerns, including the fear among businesses that
the regional administration would raise tax tariffs to
exhorbitant levels and would be over eager to impose new taxes.

But Prijadi said that the greater taxing power should be
exercised in accordance with the commonly accepted tax principle.

He said that although the proposed amendment would allow the
regional administration to issue their on ruling on tax and
levies without the approval of the central government, it would
also provide the central government with the power to overrule
the ruling if it is against the public interest or the more
superior law.

Director general of tax Mahfud Sidik admitted that the new-
found greater tax power could cause the regional administration
to be too aggressive in collecting tax.

"We are moving from one extreme to another extreme ... there
should be a learning process," he told reporters.

He said that it was crucial to upgrade the capability of tax
officials in the regions.

Mahfud said that the proposed amendment of the regional tax
law would ensure that the tax ruling issued by the region meets
the "principle of a good tax policy."

He pointed out as an example that the tax policy should not be
designed in such a way that would trigger businesses from one
regency to move to other regencies with lower tax rate.

He also said that the tax policy should not cause economic
distortion which would only harm the economic growth of the local
area.

Elsewhere, Mahfud said that tax revenue as of the first week
of this month had reached Rp 61.6 trillion or more than 72
percent of the target for this year. (rei)