'Local taxes don't spook investors'

'Local taxes don't spook investors'

Dadan Wijaksana, The Jakarta Post, Jakarta

The decentralization program has never been the reason for the
deteriorating investment climate in the country, the Association
of Indonesian Regencies and Municipalities (Apkasi) said,
pointing out that the real problems were political uncertainty
and security concerns.

Apkasi chairman Syaukani HR said on Thursday that there was a
strong tendency to make local governments the scapegoats whenever
an investor pulled out of the country, and to automatically blame
local regulations, even labeling them as misconceived.

"Local governments know how to impose taxes and charges
without producing damaging consequences.

The principle is always the same in issuing such regulations
-- not to impose too much of a burden on the public nor to cause
jitters among investors," Syaukani told The Jakarta Post.

He was commenting on a newly-launched report by the World Bank
on decentralization in Indonesia, which partly blamed local
governments as being responsible for further eroding investor
confidence by issuing contentious regulations.

The report noted that most regions imposed various taxes and
charges that were not only unnecessary, but also had the
potential to scare investors away.

Examples of "nuisance taxes" imposed by local governments were
the tax on the "importation" of goats into Bogor regency, West
Java, and an advertisement tax on Coca Cola bottles in Lampung
province.

However, Syaukani, who is also the regent of Kutai Kartanegara
in East Kalimantan, brushed aside such suggestions, saying they
were an attempt by the central government to conceal its own
failures in ensuring long-term political and security stability
across the country, which Syaukani identified as being the most
crucial factors in determining whether an investor would continue
to do business here.

"Stability, that's what investors are looking for. How can
they blame us if unrest in certain areas continues to occur.

"So, instead of the local regulations they often blame for
scaring investors away, I think the failure to establish long-
term stability is the main reason," he said.

Nevertheless, Syaukani agreed with the report's finding that
the capabilities of the regions to secure greater locally-
generated revenues needed to be strengthened.

The report stated that a lack of local revenue sources was the
main reason why local governments issued thousands of regulations
imposing bizarre taxes and charges.

For Indonesia, the Bank said, granting more powers to local
governments in the field of property taxes would be the most
feasible option as applied elsewhere in the world. At present, a
regency only gets 64 percent of the land and building tax revenue
generated within it, with the rest going to the provincial
administration and Jakarta.

"I agree with this suggestion. I would even suggest that the
central government start sharing locally-generated revenue from,
let's say, the income and sales tax areas," Syaukani said

He added that he also agreed with the Bank on the need for a
more equitable design for the distribution of General Allocation
Fund and Special Allocation Fund payments, and more local
borrowing powers.

"The current General Allocation Fund is way below what is
required under the law, so increasing it would be a good thing."

Based on the prevailing law, the size of the General
Allocation Fund should represent at least 25 percent of the
country's total domestic revenue. By contrast, the fund this year
stands at Rp 76.9 trillion, around Rp 5 trillion short of one-
fourth of the Rp 337 trillion in total domestic revenue.