The House of Representatives (Dewan Perwakilan Rakyat / DPR) has passed the Bill on Regional Taxation and Regional Retributions (Rancangan Undang-undang Pajak Daerah dan Retribusi Daerah / RUU PDRD). The new law is expected to play a strategic and fundamental role in achieving the decentralization of fiscal responsibilities between the Central and Regional Governments.
The basic objectives of the bill are:
i.
Provide the requisite authorities to the relevant regions with respect to the levying of taxes and retributions;
ii.
Raise levels of accountability at the regional level, improve the provision of services, and ultimately strengthen regional autonomy; and
iii.
Provide legal certainty for businesses and other with respect to what are legal taxes and retributions.
The bill is also premised on a number of key principles, including:
i.
Provide authorities to the relevant regional powers that were not onerous on the community when exercised and that were relatively fiscal neutral;
ii.
Restrict the types of taxation and retributions that may be levied by the regional powers to those that have been codified in law (closed lists);
iii.
Give the authority to regions to set taxes and retributions within the minimum and maximum frameworks provided for;
iv.
Allow the relevant regions to determine whether they are going to levy a certain tax or retribution according to the public policies of the relevant regions; and
v.
Strengthening of preventive and corrective measures through improved enforcement and punishment mechanisms.
The bill also enumerates an earmarking mechanism. Earmarking is, in essence, legislating that specific amounts of taxes and retributions collected are to be allocated to specific matters. For example, a minimum of 10% of motor vehicle taxes collected are to be allocated to road maintenance and development. Similarly, for cigarette (tobacco) taxes, at least 50% of these taxes are to be allocated to health and the enforcement of law matters.
The bill will repeal and replace Law No. 18 of 1997 as amended by Law No. 34 of 2000.
The new law will come into force on 1 January 2010.
It is worth noting that all implementing regulations required by the new law must be enacted within 12 months of the law coming into force. Also the provisions relating to cigarette taxes do not come into force until 1 January 2014, and there is to be progressive changeover in land and building taxes through to 31 December 2013.
The House of Representatives (Dewan Perwakilan Rakyat / DPR) has passed the Bill on Regional Taxation and Regional Retributions (Rancangan Undang-undang Pajak Daerah dan Retribusi Daerah / RUU PDRD). The new law is expected to play a strategic and fundamental role in achieving the decentralization of fiscal responsibilities between the Central and Regional Governments.
The basic objectives of the bill are:
i.
Provide the requisite authorities to the relevant regions with respect to the levying of taxes and retributions;
ii.
Raise levels of accountability at the regional level, improve the provision of services, and ultimately strengthen regional autonomy; and
iii.
Provide legal certainty for businesses and other with respect to what are legal taxes and retributions.
The bill is also premised on a number of key principles, including:
i.
Provide authorities to the relevant regional powers that were not onerous on the community when exercised and that were relatively fiscal neutral;
ii.
Restrict the types of taxation and retributions that may be levied by the regional powers to those that have been codified in law (closed lists);
iii.
Give the authority to regions to set taxes and retributions within the minimum and maximum frameworks provided for;
iv.
Allow the relevant regions to determine whether they are going to levy a certain tax or retribution according to the public policies of the relevant regions; and
v.
Strengthening of preventive and corrective measures through improved enforcement and punishment mechanisms.
The bill also enumerates an earmarking mechanism. Earmarking is, in essence, legislating that specific amounts of taxes and retributions collected are to be allocated to specific matters. For example, a minimum of 10% of motor vehicle taxes collected are to be allocated to road maintenance and development. Similarly, for cigarette (tobacco) taxes, at least 50% of these taxes are to be allocated to health and the enforcement of law matters.
The bill will repeal and replace Law No. 18 of 1997 as amended by Law No. 34 of 2000.
The new law will come into force on 1 January 2010.
It is worth noting that all implementing regulations required by the new law must be enacted within 12 months of the law coming into force. Also the provisions relating to cigarette taxes do not come into force until 1 January 2014, and there is to be progressive changeover in land and building taxes through to 31 December 2013.
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