Legal certainty focus of tax draft
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).