New laws needed to cut high-cost economy

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)