Ministry says no to regions' demand for higher revenue

The Jakarta Post, Jakarta

The Ministry of Finance has rejected requests from oil producing regions for a greater portion of revenue from the commodity as it would only further widen the income gap among the regions.

"The ministry still wants the 85:15 proportion. It's still being discussed, but our position is clear; we will stick with the existing regulation," Director General of Financial Institutions at the ministry Darmin Nasution said on Friday.

He was referring to the current revenue-sharing mechanism outlined under the 1999 law on fiscal balance between the central and local governments, which states that oil-producing provinces get 15 percent from the oil revenue, with the remainder going to the central government.

An exception is made, however, for Aceh and Papua -- which are entitled to a much higher share at 85 percent -- given their special autonomy status. Under the same law, provinces will get 30 percent of revenue from natural gas and 80 percent of revenue from forest resources and fisheries.

Regions are entitled to a portion of revenue obtained from local natural resources following the introduction of the Regional Autonomy Law in 1999, which grants regions greater power in managing their economic affairs.

The demand for a higher portion of the revenue came as the government is currently in the process of revising the fiscal balance law and the Regional Autonomy Law.

With the oil prices currently soaring at above US$40 a barrel -- way above the 2004 state budget assumption of US$22 a barrel, regions are using the momentum to seek a much larger oil revenue.

Most of the resource-rich regions are seeking an increase in their portion to at least 30 percent. Riau province, which produces a significant portion of the country's oil output of around 1 million barrels per day, has even asked for a 40 percent portion of the revenue.

They argue that under the Regional Autonomy Law, regions are entitled to a significant percentage of return on assets or profits generated from their own areas.

But Darmin said that higher revenue would be unfair to non oil-producing regions; "The higher the proportion given to certain regions, the more unfair it would be to others."

He added that the revision of the law on fiscal balance was aimed at resolving the current income gap among regions, a problem which had forced many regions to be overly aggressive in taxing the business sector and thus creating an unfavorable investment climate.

He also argued that the central government should be entitled to a much higher revenue portion as it also had to cover the costly fuel subsidy and other expenses such as for defense and national programs.

"So, why should it (current revenue split) be changed?" he said.

Meanwhile, unconfirmed reports said that the Ministry of Internal Affairs had agreed to the regions demand for a higher revenue split.