Jakarta – Indonesia will bring in a new levy for palm plantations within the next two years, the proceeds of which will be used to protect public interests and the environment, its finance minister said on Tuesday.
The new levy will be collected by regional governments from local palm planters and is part of a new law aimed at increasing the fiscal capacity of provincial and city administrations, Sri Mulyani Indrawati told parliament after it passed the law.
There will be regulations detailing the implementation of the law, including about the new levy, and they must be issued within two years of the law's passage, Sri Mulyani said, without mentioning how much palm planters are expected to pay.
"The law provides an option to introduce a new levy to support regional fiscal capacity in order to provide quality services to the community... in the context of public interest and environmental sustainability, such as a levy for the management of palm plantations," the minister said.
The law, which governs the relationship of Indonesia's central and local governments, will also give more space for regional administrations to raise some tax rates within the next few years, including land and building taxes.
Sri Mulyani said local governments should be able to increase revenues by about 50% after the new measures are applied.
The law will provide a legal basis for regional governments that have fiscal capacity to issue municipal bonds to fund development projects. No provinces or cities in Indonesia currently sells such bonds.
Because the legislation is aimed at standardising the quality of fiscal spending, the central government will review its transfer to local governments based on performance and results, Sri Mulyani said.
However, this was not meant to reverse the fiscal decentralisation policy adopted in the aftermath of the 1998 Asian financial crisis, she said.
[Reporting by Gayatri Suroyo; Editing by Martin Petty.]