Jakarta – Regional administrations will have greater local tax potential following the implementation of a new law on regional tax and levies that would give them the authority to collect local taxes, a tax official says.
Law No. 28/2009 on Regional Tax and Levy mandated the transfer of tax collection from the central government to regional administrations, thereby strengthening local taxation power, Directorate General of Taxation tax appraisal sub-directorate head Pestamen Situmorang said Friday.
"With improved powers to tax, local administrations will have wider tax objectives," Pestamen told journalists at a taxation discussion at the taxation directorate general office.
The law stipulates that local administrations will be fully responsible for the collection of land and building acquisition levies (BPHTB) and the urban and rural land and building tax (PBB P2).
Currently the central government manages PBB P2 and BPHTB, while regional administrations help by collecting taxes and submitting tax receipts.
Regencies and municipalities receive 64.8 percent from PBB P2 revenues, provinces receive 16.2 percent and the central government is entitled to the remaining 10 percent. For BPHTB, sharing is 64 percent for regencies and municipalities, 16 percent for provinces and 20 percent for the central government.
With the new law, all revenues from both taxes will be given directly to regencies and municipalities.
Local administrations would have the authority to manage BPHTB receipts beginning Jan. 1, 2011, and PBB P2 after Jan. 1, 2014. However, local administrations may be able to manage PBB P2 before 2014 if they are able to regional bylaws before 2012, he said.
Revenues from both taxes had huge potential for regional finance, Pestamen said, adding that the shorter distance between tax officials and taxpayers would bring about more effective monitoring.
The central government would explore other avenues to supplement lost revenue following the tax transfer, Finance Minister Agus Martowardojo said.
According to the Taxation Directorate General, as of Sept. 30 there had been Rp 21.41 trillion of PBB P2 collected, or 84.54 percent of the Rp 25.32 trillion target. Regarding BPHTB, Rp 4.72 trillion had been collected, or 65.92 percent of a Rp 7.16 trillion target.
The law would allow regional administrations to set rates for the two taxes, but the law set a cap of 0.5 percent for PBB P2 and 5 percent for BPHTB, Pestamen said, adding that because they would be empowered with the appropriate authorization, local administrations could set rates even lower.
The law also set the non-taxable threshold for land acquisition values and buildings. The caps dictate Rp 60 million for ordinary transactions and Rp 300 million for grant and inheritance.
The government is targeting tax revenues worth Rp 839.5 trillion in 2011, a 12.9 percent increase from Rp 743.3 trillion in its revised 2010 budget.
According to Finance Ministry data, tax revenues reached a total of Rp 2,525.8 trillion between 2005-2009, showing a 15.6 percent annual increase, far higher than Rp 1,034.1 trillion achieved between 2000-2004. (ebf)