Shared Taxes and Revenues

Local Government Organization and Finance: Indonesia 249

Shared Taxes and Revenues

The general provisions for the sharing oftax and nontax revenues are regulated by article 7 ofLaw 25/1999.Government Regulation 104/2000 translates these general provisions into specific sharing arrangements.The sharing arrangement for personal income tax is included in article 31 ofLaw 17/2000 on income tax.Special arrangements concerning revenue sharing for Aceh and Papua are included in the two special autonomy laws.14

Table 7.6 gives an overview ofthe current sharing arrangements.It shows that though most tax sharing is based primarily on the derivation principle,fishery royalties and property-related taxes use equal shares as an added criterion.The 9 percent national share in the property tax is simply an administrative fee to compensate the national tax administration for collecting and administering the tax.It is noteworthy that in apportioning personal income tax,place ofwork rather than the almost universally used place ofresidence is the criterion (Brodjonegoro and Martinez-Vazquez 2002; Hofman,Kadjatmiko,and Kaiser 2004;Shah 1994;World Bank 2003).In addition to the sharing arrangements for national revenues,local governments receive shares ofthe four provincial taxes:the motor vehicle tax (30 percent),the vehicle transfer tax (30 percent),the fuel excise tax (70 percent),and the groundwater extraction and use tax (70 percent).However, the contributions ofthese taxes to overall local revenues are relatively small.

Arrangements for natural resource revenue sharing are not a new feature ofLaw 25/1999 but had been in place for mining and forestry proceeds in the prereform period.However,decentralization increased the share going to local governments.Most revenues from these two resources are returned to the originating provincial or local jurisdictions.The sharing of fishery,oil,and gas revenues was introduced in 2000.The revised Law 33/2004 introduces some slight changes to sharing arrangements.It introduces a new type ofshared revenue,proceeds from geothermal mining.It also slightly increases the subnational share ofoil and natural gas revenues. Starting in 2009,84.5 percent ofoil revenues will accrue to the central budget,and 15.5 percent will accrue to subnational governments.For gas revenues,69.5 percent will go to the center,and 30.5 percent to the regions. Subnational governments will receive an extra 0.5 percent ofboth oil and gas revenues,which are earmarked for increasing local expenditures on primary education.

The sharing ofoil and gas revenues was introduced to redress the grievances ofthe resource-rich provinces that,although they face the development costs and environmental consequences ofresource exploitation,all