Provinces to get 61.5% of revenue

Provinces to get 61.5% of revenue

MANADO, N. Sulawesi (JP): Provincial and district
administrations will get more than 61.5 percent of the
government's total domestic revenue next year when the laws on
regional autonomy and intergovernment fiscal balance become
effective, Minister of Finance Bambang Sudibyo said here on
Saturday.

Bambang told local officials at a briefing conference on
preparations for the implementation of the two laws that domestic
revenue for the 2001 fiscal year beginning in January was
estimated at Rp 230 trillion (US$25.5 billion at the current
exchange rate).

"However, only about Rp 112 trillion of the total revenue will
be available for routine and development spending because Rp 79
trillion will go on servicing domestic and foreign debts and Rp
39 trillion on fuel and electricity subsidies.

Rp 69 trillion of the Rp 112 trillion will be allocated to
provincial and district administrations under the intergovernment
fiscal law and only about Rp 43 trillion will be retained by the
central government," the finance minister added.

He reiterated that the central government's financial capacity
would be severely restrained as the bulk of revenue would be
allocated to regional administrations.

Law No. 22/1999 gives more autonomy to local administrations
and Law No. 25/1999 provides a bigger share of revenue to the
provinces and districts.

However, he added that the estimated domestic revenue was only
a preliminary figure which had yet to be finalized before the
2001 draft budget would be proposed to the House of
Representatives in October.

The current state budget is only from April to December as the
government will base its fiscal year on the calendar year
beginning in 2001.

Head of budget analysis at the Ministry of Finance Marwanto
Hardjowirjono told the same conference that the government
expected to further lower its budget deficit, which in the
current fiscal year is estimated at 4.8 percent of gross domestic
product.

"It may be somewhere around 3 percent, because the economic
recovery next year is widely expected to be much stronger,"
Marwanto added.

The current state budget envisages total domestic revenue at
Rp 152 trillion and a budget deficit at Rp 44 trillion.

Marwanto said that the preliminary revenue estimates for 2001
assumed a 3 percent to 4 percent inflation rate, economic growth
of 3 percent to 4 percent and a range of Rp 6,800 to Rp 7,800 for
the rupiah's exchange rate against the U.S. dollar.

Asked whether the assumption for the rupiah rate was too
optimistic, he argued that the range was reached after
considering macroeconomic factors only.

The rupiah has been on a downward trend since May, heavily
fluctuating along with the country's political situation.

But Marwanto said it was impossible to measure political
uncertainties, let alone factoring them into predictions for the
rate of the rupiah.

"We don't see any economic reasons that would justify a weaker
rupiah rate," he said.

Marwanto added that the preliminary revenue estimate had not
yet factored in the likely impact of the new tax laws, which were
approved by the House last week.

The amended income tax law, for example, requires the
government to allocate 20 percent of individual income tax
receipts to provinces.

The revised tax laws, notably those on income tax, value added
tax and general rules on taxation, are designed mainly to broaden
the tax base, strengthen tax collection and improve tax
administration.

He said that similar to the current fiscal year, next year's
budget deficit would also be covered by foreign loans, the
privatization of state enterprises and the sales of assets under
the Indonesian Bank Restructuring Agency (IBRA).

"But we have yet make to an estimation of revenues from these
sources," he added.

IBRA, a unit of the finance ministry, controls about Rp 600
trillion in assets taken over from closed down and nationalized
banks.

But economist and secretary of the National Economic Council
Sri Mulyani Indrawati said that pressure on the rupiah would
still be strong next year, regardless of the political situation.

She said the government's plan to further hike fuel prices
later this year was bound to increase inflation and
subsequently weaken the rupiah.

Further down the line, she said, any rise in inflation would
also affect bank interest rates and this in turn would increase
the government's servicing of its bonds (worth about Rp 430
trillion) issued to finance bank recapitalization.

"Let's not forget that we have domestic debts of Rp 600
trillion, most of which are in treasury bonds with interest rates
floating on the banking interest rates," she warned.

The higher inflation rate would, therefore, burden the payment
of these bonds, she said.

"We hope that the increase in income tax revenue as a domestic
funding source will be significant," Sri added.

Director General of Taxation Machfud Siddik said he expected
to raise tax revenue to between Rp 165 trillion and Rp 170
trillion in the next budget year, from Rp 101 trillion in the
current nine-month budget.

Although the amended income tax law offers a break to many
individual taxpayers, Machfud is optimistic about his target.

"The amended income tax law, and other tax laws, merely act as
an umbrella for tax policies. The modernization of the tax
administration and efficiency of tax collection is more
important," he added.

His office, he said, would go all out to net more eligible
taxpayers and taxable objects.

Machfud expected that within five years, the number of
registered individual taxpayers in the country would double or
triple from the current 1.3 million.

"We estimate that there are 12 million potential individual
taxpayers, but in the last 10 years the number of registered
individual taxpayers increased by only 60 percent from about
800,000 in 1990," Machfud said. (bkm)