Purge levies, let small-scale enterpreneurs flourish

Purge levies, let small-scale enterpreneurs flourish

By Vanessa Johanson

BANDUNG (JP): Indonesia's struggling, small-scale
entrepreneurs are obliged to pay out a large slice of their
annual profits on legal and illegal levies.

At a recent, weekend focus group for small, local enterprises
in Cirebon, West Java, the owners complained about paying illegal
levies on top of the official charges for services. These levies
were requested, sometimes in the form of cash payments and
sometimes in the form of gifts.

Some small businesspeople regarded these contributions as an
essential part of business life, even though they are illegal.

Levies have been blamed for stunting the growth of the
businesses seen in most neighborhoods. When local officials and
authorities impose charges, it force up production costs and
hits, among others, the owners of vegetable stalls in markets,
photocopy shops, small road-side eateries and factories employing
a handful of people.

Micro-enterprises (businesses with annual turnovers below Rp
50 million), small enterprises (businesses with annual turnovers
between Rp 50 million and 200 million) as well as larger
companies all incur these charges.

Naturally, most enterprises are required to have some form of
business license. These licenses have different names and
procedures, including the Licensing Letter for Business Trading
(SIUP) or Company Registration (TDP), depending on the size of
the enterprise and its location.

In addition to the license fee there are a plethora of
payments including: retribution obtained on a daily or weekly
basis; taxation paid as deemed appropriate by a visiting team
from the Tax Office; Land Development Tax; Market Authority;
Development Tax: Advertising Tax; Sanitation Retribution; Safety
Retribution; Use of Parking Area Retribution; and Land Rent.

On top of all of these costs comes the payments which
represent the most formidable burden, according to an innovative
study undertaken in Central Java by the Faculty of Economics at
Satya Wacana University. These are the informal payments of
sumbangan liar or illegal levies, requested by various government
officials, police, army and so on who make on-site visits to
enterprises. These payments are not usually receipted and the
amount is not fixed.

A research team led by Roos Kities Andadari, Ina Hunga and
Henry Sandee PhD, carried out a study in the small city of
Salatiga and the town of Karanggeneng. They conducted detailed
interviews with 202 small and micro-enterprises about levies and
contributions. They also held in-depth interviews with
representatives of local authorities and the larger business
community.

The draft report of the study states that last year the
average gross earnings for producers and their families was about
10 percent to 15 percent of the annual turnover. Micro-
enterprises had to spend about 5 percent of those earnings on
levies and illegal payments while small enterprises had to spend
about 10 percent on these payments. In some specific cases,
enterprises were spending approximately 20 percent of their
earnings on these official and unofficial fees.

Often those demanding these donations arrived around Idul
Fitri and Christmas, periods of high financial strain for the
community. Thus the burden was accentuated at these times.

Many of those requesting payment thrived on the ignorance of
the small business person. One example was a small chili farmer
near Bandung, who was receiving a drastically reduced rate for
each kilogram of his produce. The reduction was because the agent
taking the chilies to market was paying several "levies" to
market authorities and taking that levy from the payment for each
kilogram.

Some small business groupings have greater bargaining power
and so pay less for licenses and donations. In some sectors,
business licenses in the town of Karanggeneng were almost twice
the cost of those in the larger center of Salatiga. The reason,
presumably, was the Salatiga enterprises were greater in number
and more organized when dealing with local authorities, using
agents or middlemen.

Some local authorities, however, are sensitive to the economic
vulnerability of small and micro-businesses in relatively
isolated areas. Therefore charges placed on businesses in
Karanggeneng, for example, tended to be less than those in
Salatiga for payments other than permits.

Non-indigenous (non-pribumi) entrepreneurs are also likely to
pay less for all official charges due to their self-organization
and bargaining power. On the other hand, indigenous (pribumi)
enterprises are unlikely to form associations and use middle-men
who offer to obtain the permit or pay the tax at "relatively low
costs".

Business licenses demand a huge economic commitment, with
businesses at times paying 20 times the official rate for a
license. The study found that the cost of permits sometimes
reached Rp 350,000 for small enterprises and Rp 100,000 for
micro-enterprises, when the official rates are Rp 17,500 for
businesses (SIUP) and Rp 12,500 for company registrations (TDP).

This phenomenon was caused by small businesses paying extra
for a "special service", namely time-consuming tasks. The
complexity and delay experienced in the licensing bureaucracy
resulted in many small businesspeople opting to hire a specialist
agent to obtain the license. This too added to the cost.

If the payment burden is high in small cities and towns, such
as those mentioned in the report, what is the impact on
businesses in larger centers and in large scale enterprises?

Such is the need for discussing the phenomenon of "illegal
levies" that the Social Research Institute Akatiga, in Bandung,
has set up a series of focus groups in different locations in
Java. The aim is to pool knowledge and experiences about the
multitude of charges placed on small businesses.

The focus groups involve local, small-scale entrepreneurs and
non-government organizations. The entrepreneurs are proving to be
highly vocal about the impact of these payments.

All groups involved are aware that if small enterprises in
Indonesia are ever going to advance and flourish, all fees,
levies and donations must be fair, non-corrupt, official and
recorded.

The writer is a researcher at Akatiga Center for Social
Analysis in Bandung.