New law gives local administrations larger revenues

New law gives local administrations larger revenues

JAKARTA (JP): Resource-rich provinces will get 15 percent of
the government's oil revenues, 30 percent of gas receipts and 80
percent of forestry and fisheries-derived incomes under a new law
approved by the House of Representatives on Friday.

The law on intergovernmental fiscal balance also will provide
provincial and district administrations with a bigger share of
the revenues derived from mineral (outside oil and gas) and land
resources in their respective areas.

The approved law differs widely from the bill proposed by the
government in February in that the final version has more clear-
cut stipulations on revenue-sharing formulas related to revenues
derived from natural resources.

"Though this law is far from perfect, it should be praised as
a new piece of legislation of monumental value and quality,"
noted Chairuddin Harahap, head of the House's special committee
in charge of deliberating the bill.

The law on intergovernmental fiscal balance will supplement
the law on regional administrations which was approved by the
House on Wednesday. The latter law transfers more administrative
functions from the central government to local administrations.

Harahap said legislators worked hard to examine the bill and
held discussions with experts and officials from various local
administrations to determine the fixed formulas for revenue
sharing between the central government and local administrations.

"We held special discussions with the administrations of
resource-rich provinces which have been demanding much bigger
shares of the wealth extracted from the natural resources in
their areas," he added.

Finance minister Bambang Subianto, who represented the
government at the House plenary session, said provincial and
district administrations would have a significant role in
deciding fund allocations for their respective budgets.

Autonomy

"This law also gives local people (through legislative
assembly) and local administrations greater autonomy to manage
their budgets," Bambang added.

Under the new law, local administrations will receive 15
percent of the government's net revenue from the extraction of
natural oil in their respective areas, with the remaining 85
percent going to the central government in Jakarta.

The law stipulates that the central government will give local
administrations 30 percent of the net revenue derived from
natural gas in their respective areas, keeping the remaining 70
percent for itself.

Under the production-sharing contract system, the government
is entitled to 85 percent of a contractor's gross oil revenue and
70 percent of the gross gas revenue, including corporate income
tax and dividend tax payable by contractors to the government.

Government after-tax oil revenue is estimated at 65 percent of
a contractor's net revenue.

Several provinces rich in oil and gas, including Aceh and
Riau, have demanded a significant portion of the government's oil
and gas revenue, which has until now been wholly transferred
directly to the central government.

The resource-rich provinces have been so adamant in their
demand that they have threatened secession from Indonesia if the
central government does not meet their demand.

Aceh, which is home to giant liquefied natural gas firm PT
Arun NGL co, demanded 80 percent of the government's gas revenue
from the province, while Riau, which produces more than a half of
the country's oil output of 1.2 million barrels per day, asked
for at least 10 percent.

Under the new law, the central government, which up to now has
taken all of the reforestation fund, will have to give 40 percent
of the fund to provinces which generate the fund.

The law also stipulates that local administrations shall
receive 80 percent of the government's revenue from the forestry
sector, with the remaining 20 percent going to the central
government.

In the mining (outside oil and gas) and fishery sector, local
administrations will get 80 percent of the revenues.

Under mining contracts of work (COWs), mining contractors have
been obliged to submit to local administrations 80 percent of
their royalties and dead rent payable to the government.

However, this obligation has never been fulfilled due to the
government regulation requiring mining contractors to transfer
all royalties and dead rents directly to the central government.

Under the new law, local administrations will also receive 80
percent of property tax revenue and of the receipts derived from
tax on the transfer of land and building ownership titles.

The law also requires the central government to allocate
block grants to provincial administrations amounting at least to
25 percent of its total internal revenue.

The law allows local administrations to borrow locally and
abroad, but foreign borrowing shall get prior approval from the
central government. (jsk)