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)