The government and the House of Representatives wrapped up Tuesday the bill on regional taxes, with a strong emphasis on preventing regions from levying fees that could hamper investment.
The bill, which has been under deliberation since 2006, will determine the types of products and services that can be taxed, including the amount of taxes and other levies that can be imposed by regional administrations.
The bill also introduces a closed-list mechanism, meaning regions will not be allowed to issue taxes or levies not included in the list.
"This safeguard is to prevent regional administrations from creating or finding bad regulations in a bid to raise regional revenue," Finance Minister Sri Mulyani Indrawati said Tuesday in Jakarta.
The bill includes four new taxes and four new levies, adding to the effective 11 regional taxes and 27 regional levies.
The new taxes include land and building tax in villages and cities, tax on the acquisitions of land and buildings, tax on swallow nests, and cigarette tax.
Although the bill is expected to be passed into legislation in the next few weeks, the regional cigarette tax will only take effect in 2014, after legislators pointed out the need for the industry to prepare before the full implementation.
The cigarette tax will be capped at 10 percent of cigarette excise. Fifty percent of the tax will be allocated for healthcare and law enforcement, said Harry Azhar Aziz, head of the House's special committee deliberating the bill.
To avoid burdening the tobacco industry with double taxation, the government expects to adjust the cigarette tax relative to the central government's tobacco excise duty.
For instance, based on the assumption the value of government earnings from cigarette excise duty increases by 10 percent each year, the government's total earnings from tobacco sales is expected to reach Rp 133 trillion (US$13.4 billion).
With the implementation of the regional tax on cigarette sales, the central government will lower its earning target for 2014 to Rp 121 trillion and let regional administrations rake in the remaining Rp 12 trillion in the form of cigarette tax, which would amount to 10 percent of the government's income from cigarette excise duty.
The bill also stipulates that owners of motor vehicles must pay between 1 and 2 percent private vehicle tax. If the owner has another car, the tax will be between 2 and 10 percent for the additional car.
Owners of single two-wheeled, three-wheeled vehicle or four-wheeled vehicle will only have to pay between 1 and 2 percent tax.
There will also be a tax on fuels, but the government has been given a three-year period in which to determine the mechanism and prepare the regions to implement such a tax.
The fuel tax is capped at 10 percent.
Earnings from cigarette tax, fuel tax and private vehicle tax will be split 70 percent for municipalities and regencies, and 30 percent for provinces.
The bill also stipulates that parking tax can be as high as 30 percent.
