Regions need more money to abolish 'nuisance' taxes

Regions need more money to abolish 'nuisance' taxes

Tony Hotland, The Jakarta Post, Jakarta

The government must quickly seek solutions to the problems caused
by the implementation of local autonomy, must of which are caused
by the reluctance of the central government to delegate its
powers to the regions, a number of experts have said.

Speaking during a seminar on local autonomy here on Wednesday,
economist Robert A. Simanjuntak said that the central government
should give more powers to local administrations as regards
particular revenue sources in return for local governments
eliminating the rampant "nuisance" taxes that have been
introduced and that create such high costs for the business
sector.

"The government could, for example, confer the power to levy
land and building taxes on local administrations. If this were
done, they wouldn't be so dependent on financial transfers from
the central government, and they could compete with each other to
attract investors," he said.

The lack of local revenue sources has long been the
justification advanced by local administrations for their issuing
of a host of dubious regulations imposing frequently bizarre
taxes and fees, which only serve to further damage the already
poor investment climate.

"There have been more than 3,000 local regulations issued over
the past three years, 94 percent of which are related to taxes or
levies," Robert said.

Currently, financial transfers from the central government
accounted for between 70 percent and 90 percent of local budgets.

"Almost everywhere in the world, land and building taxes are
local taxes. By giving the authority over these taxes to local
administrations, they would then have the option of either
maintaining or lowering the taxes in order to lure investors into
their jurisdictions to boost growth there," he said.

Fellow economist Bambang Brodjonegoro concurred, adding that
the option could help balance the fiscal position as between the
central and the local administrations.

Bambang also said that to make things even fairer, the
government should put the money earmarked for projects to be
carried out by state institutions or ministries into specific
allocation grants (DAK) instead.

"This would be the best thing as most of these monies
eventually go toward projects in the regions. In addition to
that, the central government would have less duties to perform,
and could focus more on its supervisory functions," said Bambang.

The decentralization program was launched in 2001 with the
enactment of Law No. 22 on local autonomy. This law, its
ancillary regulations and Law No. 25/2001 on fiscal balance are
currently being amended by the government.

The seminar also called for the development of a specific
allocation grant (DAK) system that emphasized the importance of
support for national priorities, which would also result in
benefits to the regions. Among the priorities should be health,
education and infrastructure.

Faisal Basri, who was also among the speakers during the
seminar, said the adverse impacts caused by the decentralization
process should never be used as a justification by the central
government to restore its overbearing powers in all sectors.

"Another way to help balance the fiscal position is by letting
administrations borrow or issue bonds. The government fears the
possibility of default. But of course, it can regulate what
requirements must be meet or how much may be issued in bonds,"
said Faisal.

He said that the government could even ask the administrations
to set aside a certain amount of proceeds as insurance should
default occur.