Soeharto wants all local levies stopped
JAKARTA (JP): President Soeharto ordered Minister of Home Affairs R. Hartono yesterday to ensure that all business levies imposed by provincial, regency and city administrations be abolished immediately.
Hartono, speaking to the media after meeting with the President at the Bina Graha presidential office, said teams from the ministry would be sent to the regions periodically to ensure compliance.
An end to all business levies at local government levels is one of several pledges by the government in its latest economic reform package, drawn up with the International Monetary Fund and announced last week.
The Ministry of Home Affairs is empowered to take punitive action against delinquent administrations, Hartono said. He did not elaborate on the sanctions.
Levies, legitimate and otherwise, have been a major source of complaints for many businesses, as they increased business expenses and undermined overall competitiveness.
The central government frequently promised to reduce the number of levies, but its efforts were met strong bureaucratic resistance. Many local administrations have relied on levies to bolster their revenues.
Hartono said local administrations would soon be allowed to impose a 5 percent local tax on sales of gasoline to replace the levies.
They should also collect more income from the higher tax rates on the transfer of property titles beginning April 1. All property tax revenues would also be retained by the local administration beginning this fiscal year.
The government has yet to announce when the new 5 percent gasoline tax, originally scheduled for April 1, will take effect.
Hartono conceded the end to the business levies would mean lower revenues for local administrations.
The move has already forced many local administrations to slash their budget plans for this year.
The Jakarta city administration announced yesterday it was scaling down its spending in this fiscal year by a further 35 percent, from Rp 2.8 trillion to Rp 1.8 trillion.
The regency office in Dili, the capital of East Timor, said many city administrations could not operate if they were to rely solely on locally generated tax revenues and central government subsidies.
Anthonio Castro, the regency's director of local companies, said the abolition of business levies would be particularly tough for administrations in poor provinces like East Timor and East Nusa Tenggara, Antara reported.
Richer provinces like Bali and those in Sumatra and Kalimantan would experience few effects, he said.
Castro warned that local administrations would become even more dependent on central government subsidies to finance their development programs. (byg)