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THREE YEARS OF FISCAL DECENTRALIZATION IN INDONESIA : ITS IMPACTS ON REGIONAL ECONOMIC DEVELOPMENT ... - page 7 / 21

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the allocation formula to the minister of finance and national parliament (DPR) without the guarantee that each one of them will only consider the commission proposal in the discussion. There is a room for them to select proposals coming from another party. MOHA, on the other hand, is trying to keep the role of regional autonomy advisory council in the law 22/1999 amendment. Furthermore, MOHA proposed to have only one secretariat in DPOD that handles both regional autonomy and fiscal decentralization matters. It implies that MOHA will be the authority for intergovernmental transfer issues including DAU allocation formula. The national parliament has another idea in their version of law 22/1999 amendment that gives the authority to DPR budget committee in determining the DAU allocation formula. These conflicting ideas simply revealed that money and politics are inseparable in Indonesia.

While DAU becomes the center of attention for most of local governments, another serious issue in the local finance, the local own revenue, seems to be neglected. The law 25/1999 and law 34/2000 obviously do not give significant local taxing power since the Indonesian decentralization was designed to be the expenditure-led decentralization financed by transfer. However, after three years of decentralization, the aspiration of

higher

local

taxing

should

be the

ability

power emerged.

One important indicator of regional autonomy

of

the

local

governments

to

find

their

own

sources

of

revenue

and

to

reduce the dependence to the transfer. As mentioned briefly, that is Indonesia since most of local governments are spoiled by the existence not pay enough attention to optimize the local own revenue. Comparison

not the case in of DAU and do between annual

growth rate of local own revenue indicated that prior decentralization

during growth

1994-1996 period and 2001-2002 period (20%) is much higher than decentralization

growth (5%). On the other hand, the central government local taxing power by transferring one or more of their

is highly taxes to

reluctant

to give more

the local

government.

The latest failure good example on

to transfer the authority of property tax to the local government how difficult an old paradigm shifts to the new paradigm. It is true

was that

the local governments might not have the capability to collect the and it is also true that the local governments might be reluctant to their residents. However, the new paradigm of decentralization

property tax optimally impose direct taxes to will move toward the

more accountable local government and local parliament to the local residents. introduction of property tax as local tax is one of accountability instruments. If the governments are deemed incapable of collecting the property tax revenue, then could focus on the tax rate setting and let the more capable central government handling the collection and administration.

The local they body

The weak local taxing power has another negative implication regarding the local investment climate. Since most of local governments realized that the amount of transfer is far from enough to fulfill their needs as a result of slow economic recovery, and at the same time they do not have alternative from existing local taxes and charges, they are trying to find other sources that unfortunately are illegal and disruptive. Imposing new charges, levies or fees has become the favourite tools for local governments to generate additional revenue and ensure a stable cash-flow management. The easiest targets for those new additional revenues are unfortunately the local businesses that seem to be powerless in that situation.. It is not surprising to find plantation companies in Sumatra

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