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)