New laws needed to cut high-cost economy

JAKARTA (JP): Indonesia needs to enact new laws on taxes and levies imposed by local administrations and on non-tax revenue resources administered by the central government in order to reduce the high-cost components of the economy, Tax Director General Fuad Bawazier said yesterday.

Fuad told a seminar organized by the Center for Fiscal and Monetary Studies that the proposed two laws would serve as a starting point to restructure the numerous levies which have been blamed for both the high cost of doing business in the country and the country's economic inefficiency.

"Those laws would provide legal certainty for ministries and local administrations as well as the people, in this case businesspeople," Fuad told the seminar, .

He noted that legal levies, called retributions, and local taxes have created uncertainty for the business community because the collection of these levies and taxes often created illegal levies.

Fuad noted that since Law No.11/1957 on local taxes and Law No.12/1957 on local retributions are no longer enforced, the levying and collection of local taxes and retributions had turned into a jungle without clear-cut rules.

"It is now difficult to distinguish local taxes from retributions. Levies are imposed often without any consideration as to their social and economic cost," he pointed out.

Very often such levies cause distortions in the allocation of resources and even welfare losses as their collection costs are sometimes higher than the revenues collected, Fuad said.

"Many local administrations do not realize this because it is the central government that pays the salaries of most local officials, including those who collect the levies," he added.

According to the National Development Planning Board (Bappenas), there are five kinds of taxes and 58 kinds of retributions collected by provincial administrations.

Meanwhile, in each district administration, Bappenas recorded 36 kinds of taxes and 134 different retributions.

Fuad argued, however, that only a few of the retributions, both at the provincial and district levels, have the potential to generate significant revenues.

User taxes

Meanwhile, Soemarso, chairman of the Center for Fiscal and Monetary Studies -- the research arm of the Yayasan Bina Pembangunan foundation -- suggested that the government allow ministries and other state institutions to generate their own funding by imposing user taxes.

"By doing so, state institutions could achieve a self- financing capability and would be able to give better remuneration to their employees and eventually better services to the people," Soemarso said.

Participants at the seminar, including members of the House Budgetary Commission, criticized the unbalanced fiscal authority between the central government and local administrations.

They blamed the proliferation of levies in the provinces and districts on the requirement for local administrations to increase their self-financing capability.

"This requirement has forced local administrations to impose levies or retributions because almost all taxes related to economic activities are administered by the central government," noted Aberson Marle Sihaloho, deputy chairman of the House Budgetary Commission.

Aberson blamed the government for not supplementing Law No.5/1974 on regional autonomy with a law on fiscal balance between the central government and local administrations because the previous legislation (Law No. 32/1956) on that matter can no longer be enforced under the current condition.

"If the central government does not introduce a better balance of fiscal relations with local administrations, resentment towards the central government will grow in a number of provinces and districts," Aberson cautioned.

Commenting on Aberson's argument, Fuad said that the adoption of the two laws he proposed on government non-tax revenues and local taxes and retributions will pave the way for amending Law No. 32/1956.

"The best way to govern fiscal relations between the central government and local administrations is through law," Fuad said. (rid)