The new law on local government taxes drew a mixed reaction from the country's business leaders on Tuesday, with some cautiously welcoming the legislation and others saying they needed to take a closer look at the law before commenting. Some businesspeople were less than pleased, however.

"I was shocked when I heard about the new taxes, especially when I heard that local tariffs for entertainment venues – including nightclubs, bars and massage parlors – could reach 75 percent of sales," said Indonesian Hotel and Restaurant Association (PHRI) treasurer Johnnie Sugiarto.

The new regulation caps "total" taxes levied on nightclubs, karaoke bars and beauty contests at 75 percent. "I don't know the details yet, but if local governments increase taxes up to 75 percent, it will be pretty insane. It will certainly mean businesses will close down."

The PHRI, he said, needs to discuss the legislation because members have not been told about the details of the new law.

A government press release on the law obtained by the Jakarta Globe does not include a detailed explanation of the new rules, which are likely to affect consumers.

Bambang Susatyo, chairman of the fiscal and monetary policy committee at the Indonesian Chamber of Commerce and Industry (Kadin), warned that local governments should be careful about imposing the new taxes, or they could end up crippling the industries that they depend on for tax income.

He said overburdening the entertainment sector, a major source of jobs across the country, could negatively affect employment and regional incomes if businesses were forced to close.

But Erwin Aksa, president director of PT Bosowa, a diversified business group that owns a number of new car dealerships, praised the central government's move to cap taxes at the provincial and municipal level. He said the change could help to reduce illegal "ghost" taxes and levies.

"This is a positive move – hopefully, local governments will not be able to increase taxes or levies as much as they want from now on," Erwin said. "But we will have to wait for the implementing regulations before we can be certain of this."

The new law on vehicle taxes would definitely trigger a decline in car sales, he said. "But this will not be so bad if it increases government revenues," he added.

Ismanu Sumiran, chairman of the Association of Indonesian Cigarette Producers (Gappri), also praised the new law, saying it would positively impact both local governments and the cigarette industry.

"By giving cigarette revenues to local governments, it will reassure the industry that companies will be allowed to proceed smoothly," Ismanul said.

Agung Pambudhi, chairman of Regional Autonomy Watch, said that several articles in the tax law should have been dropped. "For instance, the levies on heavy motor vehicles," Agung said. "They should not be taxed to increase investment in industry."

Agung also warned about possible technical difficulties when implementing the taxes. "Regarding the progressive tax on second cars and motorbikes, the key question will be how they supervise it," he said. "Currently, it's easy to get a fake driver's licence and avoid paying the tax."