Legal certainty focus of tax draft
Rendi A. Witular, The Jakarta Post, Jakarta
In a bid to protect long-term investments, the government is placing emphasis on legal certainty for the business community, rather than fiscal incentives, in its draft revision on the regional tax and user charges law.
Minister of Finance Jusuf Anwar said the revision was mainly aimed at providing a legal instrument to annul locally issued bylaws that could hurt investment.
"We are concerned by several bylaws issued by local administrations as they have discouraged local and foreign investors. The revision is primarily aimed at preventing unfavorable bylaws from taking effect," he said recently.
Following the endorsement of the Autonomy Law in 2001, most administrations in provincial, regental and municipal levels have used their newly gained power as a shortcut to raise local taxes at the expense of the long-term good of the economy.
Surveys revealed that during the initial year of the decentralization program, many businesses suddenly found themselves mired in legal uncertainty as the regional administrations claimed additional taxes and levies.
The problem has prompted the government to revise the regional tax and user charges law.
On the other hand, the draft law contains fewer incentives for businesses -- with several policies on tax rates likely to hurt certain industries, such as tourism and manufacturing.
The draft revision stipulates that local administrations can collect entertainment taxes from bars, discotheques, night clubs, karaoke bars, massage parlors, fashion shows and beauty pageants to a maximum of 75 percent -- from the current 35 percent -- of the organizers' revenue.
Cultural performances and arts exhibitions will also be taxed to a maximum of 35 percent.
The draft law will also allow regency/municipal administrations to collect "environmental" taxes from manufacturing companies to a maximum of 0.5 percent of production costs.
Jusuf said although there were new tax rates, objects and subjects proposed in the draft law, regional administrations could not collect them immediately, since all bylaws on local tax and retribution should be approved by the government.
"It is clear in the draft law that when imposing a new bylaw on tax, local administrations should take into account taxpayers' financial capability. The government will ensure that the taxes will not be detrimental to the people," he said.
Under the revised law, the government has the right to delay or reduce the disbursement of "fiscal balance funds", should the regional administration refuse to revoke its controversial bylaw. Fiscal balance funds are funds allocated to regional administrations that are set aside from the annual state budget.
The lack of a legal instrument and clear sanctions have made local administrations refuse to comply with the government's requests to annul their more controversial bylaws.
The revision to the law -- the third since 1997 -- stipulates that a local administration will be required to submit their bylaws within seven days to the Ministry of Home Affairs and the Ministry of Finance for review and approval.
The draft law is being formulated by the Ministry of Finance's Economic, Financial and International Collaborative Studies Agency (BAPEKI).