Wed, 13 Aug 2003

Govt wants to annul 'nuisance taxes'

The Jakarta Post, Jakarta

The Ministry of Finance will propose to the Ministry of Home Affairs to annul a host of provincial regulations and city bylaws that hamper businesses in regions.

"We (the finance ministry) are studying a lot of provincial regulations that are not necessary and just hinder business activities. We will propose to the Ministry of Home Affairs to annul them," Tjep Ismail, director of provincial revenue at the directorate general of fiscal balance at the Ministry of Finance, said on Tuesday.

He said that his office had so far identified a total of 206 provincial regulations and city bylaws that must be scrapped.

In 2001, the Ministry of Finance proposed to the Ministry of Home Affairs to annul 80 regulations, in 2002 there were 92 more, and as of June of this year 34 regulations, he explained. It is not clear, however, why the Ministry of Home Affairs had not annulled these regulations.

Since the regional autonomy law became effective in 2001, many local administrations began issuing a variety of sometimes very bizarre regulations mainly aimed at expanding their revenue sources. But many of the rulings, however, have become a financial and bureaucratic headache for investors.

A World Bank report last month particularly addressed the matter saying the issuance of a host of "nuisance taxes" by regional governments had negatively affected the business and investment climate in the regions.

Examples of such taxes are those for importing goats into Bogor, West Java from other provinces or for Coca-Cola bottles in Lampung province.

Some regulations also are seen as overtly discriminative toward prospective investors from other provinces or countries.

The World Bank said that one of the ways to help resolve the problem was to give more power to regions over land and building taxes as compensation for eliminating the nuisance taxes.

"All around the world, land and building taxes are done at the local level. We feel that having regions decide on the rate for this tax would be a key to better governance," the Bank said in its latest assessment report on the country's fiscal decentralization program.

Reportedly, the Ministry of Industry and Trade is also drafting a bill on trade that will revise some provincial regulations that increase the cost of distributing goods to other regions.

Such regulations had been cited by economists as the main reason for soaring prices of goods in the country, which in turn makes them less competitive against imported products.