The central government and the House of Representatives are amending the 2000 Law on Regional Tax and Retribution in an effort to prevent regions from enacting selfish bylaws.
The amendment is aimed at encouraging investment in cities and regencies that have in the past enacted bylaws designed to increase revenue, the Finance Ministry's Director of Regional Tax and Retribution Budi Sitepu said recently.
"Many troubled retributions arise (as a result) of giving authority (to regions) to enact new taxes and retributions," Budi said.
"Regional taxes (and retributions) will be made in the close list (the bill on regional tax and retribution). Regions are not allowed to impose (taxes and retributions) other than those stated on the list," he said.
According to the Finance Ministry, 7,200 bylaws on regional tax and retribution had been evaluated as of mid-July, 28 percent of which were labeled as "recommended to be canceled or revised".
The Justice and Human Rights Ministry said the government had revoked 974 bylaws since the introduction of regional autonomy in 1999. The ministry recently launched a book of guidelines limiting regions' authority to draft bylaws.
Budi said some regions had enacted disruptive bylaws in their bids to increase revenue to cover expenditure.
According to the Finance Ministry, most regions are highly dependent on the disbursement of general allocation funds (DAUs) and special allocation funds (DAKs), which are distributed by the ministry.
DAUs and DAKs account for about 70 percent of regions' revenues, the ministry said.
"Thus, we will enlarge regions' tax objects. Regions with more earnings will get lower amounts of DAUs," Budi said.
The Finance Ministry has planned to create a fiscal balance between the central and local governments by reducing the amount of DAUs given to high-income regions and increasing DAUs to low-income regions.
In the bill on regional tax and retribution, the Finance Ministry includes taxes on hotels, food catering, golf and bowling, advertising banners, street lights, parking, ground water and the harvesting of swallow's nests used for food, Budi said.
In the amendment, the government and the House are planning to impose a 75 percent tax on luxury entertainment and a 10 percent tax on traditional entertainment, a change from the maximum 35 percent tax imposed in the original 2000 law.
The government is also preparing an environment tax of 0.5 percent of gross revenue to be imposed on manufacturing industries with incomes of more than Rp 300 million (US$32,608.71) per year and that have been found to be environmentally damaging.
"They need to be responsible for environmental damage too," said Tukijo, the chairman of the House's working committee on the bill.
To reduce congestion, the government is considering imposing congestion tax on vehicles entering main roads in big cities -- similar to the Electronic Road Pricing scheme enacted in Singapore.
Budi said that if such a scheme was introduced in Jakarta, it would replace the three-in-one system, which demands that all cars traveling on the city's main thoroughfares during rush hour each carry a minimum of three people.
Changes to regional tax rates
Current Proposals: 1. Hotel tax, maximum 10 percent, unchanged. 2. Restaurant tax, maximum 10 percent, unchanged. 3. Entertainment tax, maximum 35 percent; maximum 75 percent for luxury entertainment; maximum 10 percent for traditional entertainment; maximum 35 percent for other entertainment. 4. Billboard tax, maximum 25 percent, unchanged 5. Street light tax, maximum 10 percent; maximum 10 percent for non-industries; maximum 3 percent for industries; maximum 1.5 percent for industries that supply their own electricity. 6. Non-minerals mining tax, maximum 20 percent maximum 25 percent. 7. Parking tax, maximum 20 percent, maximum 25 percent. 8. Ground water tax, maximum 20 percent, unchanged. 9. Tax on swallow's nests harvesting, maximum 10 percent. 10. Environment tax, 0.5 percent.
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