Revised law gives local govts bigger slices of revenue
Dadan Wijaksana, The Jakarta Post, Jakarta
Regions will receive a greater portion of revenue from oil and gas, general allocation funds (DAU) and proceeds from bonds under a new law approved by the House of Representatives on Wednesday.
The new Intergovernmental Fiscal Balance Law, set to replace Law No. 25/1999, states that oil-producing provinces will receive 15.5 percent of the revenue from the commodity, while gas- producing provinces will obtain 30.5 percent, with the government taking the remaining 84.5 and 69.5 percent, respectively.
Under the 1999 law, the government gave 15 percent of oil revenue and 30 percent of gas revenue to the concerned provinces.
The new oil and gas revenue division will become effective in the 2009 fiscal year.
Coordinating Minister for Economic Affairs Dorodjatun Kuntjoro-Jakti, who represented the government in the deliberation of the bill, said the new law was a crucial step toward creating healthier fiscal management between the central and local governments, which would help cope with the increased power of the regions under decentralization.
The law will supplement the amended law on regional autonomy that was also approved by the House on Wednesday.
It is unclear, however, how the regions, particularly those rich in oil and gas, will react to the new law. Some provinces have demanded a much more significant share of oil and gas revenue.
Riau, for instance, which accounts for about half of the country's oil output, has demanded up to 40 percent of its oil revenue.
The new law does give provinces a larger portion of general allocation funds. The regions currently receive a minimum of 25 percent of the annual state budget's domestic revenue, while the new law raises the minimum level to 26 percent, beginning in 2008. For 2004, DAU has been earmarked at Rp 88.1 trillion.
Another source of financing for the regions is bonds, which provinces will be allowed to issue after getting approval from local House members and the minister of finance.
Dorodjatun said in a speech that giving regions more financial sources "means not only helping the regions finance their greater authority, but also aims at reducing the disparity in the availability of financial sources between the central and local governments, and at reducing financial disparity among the regions".
Dorodjatun went on to say that the government would select rating agencies for provinces planning to issue bonds.
"These agencies will evaluate the risks of each region wanting to issue bonds. Consequently, the higher the risk, the more expensive the cost of the bond issue," he said.
The law states that in issuing bonds, regions must comply with the existing regulations laid out in the Capital Market Law.
The central government will not guarantee regional bonds.
Key points of new law
* Local administrations will receive 80 percent of the central government's revenue from the forestry sector, with the remaining 20 percent going to the central government. These are the same percentages as the old law.
* The central government will give 40 percent of reforestation funds to provinces that generate the funds, while retaining the remaining 60 percent, the same as the old law.
* In the general mining (excluding oil and gas) and fishery sectors, local administrations will receive 80 percent of the revenue, the same as in the old law.
* The new law will allow local administrations to receive 90 percent of property tax revenue, compared to 80 percent in the old law.
* Local governments will receive 80 percent of tax receipts from the transfer of land and building ownership titles, the same as the old law.
* Local administrations will be able to borrow money locally and abroad, although foreign borrowing must receive prior approval from the central government, via the minister of finance.