T

hree years from now, fuel prices may vary at regional level due to the application of local fuel taxes, but the head of state may "intervene" to ensure that resulting variations in prices will not cause undue problems.

The new law on regional tax and retribution states that there will be a regional tax on fuels, capped at 10 percent. Under the law, the government has been given a three-year period to determine the mechanisms to be used and to make preparations for the regions to impose such a tax.

"Fuel tax will be imposed on buyers ... If there are problems the president may intervene," Budi Sitepu, Finance Ministry's director of regional tax and retribution, said in a discussion Friday evening.

Budi was referring to the possibility that there could be massive price differences in fuels between one region and another that this might trigger smuggling when the differential taxes became effective.

For example, if Jakarta imposes a 5 percent fuel tax on a liter of Premium gasoline, priced at Rp 4,500 (about 48 US cents), then the price will reach Rp 4,725; while if nearby Bekasi imposes a 10 percent tax, then the price will reach 4,950.

The price difference may cause Jakartans to buy fuels in Bekasi.

Therefore, he said, the President had the authority within these three years to ensure regions would be ready to implement the tax without causing any problems.

"But after three years it will be the regional authority *to determine prices*. We thought there would not be any problem, but in the end to anticipate *any problems that may arise* there is this clause," said Budi.

The fuel tax will be imposed on both subsidized and nonsubsidized fuels.

At present, the government subsidizes Premium gasoline, diesel and kerosene. Outside of these distribution channels, several oil companies, including state oil and gas PT Pertamina, also sell nonsubsidized, high quality fuels

The new law on regional tax and retribution provides regions with greater authority to determine levies and extra discretion to determine the rate of such levies, but taking into account the benefits to their respective areas.

Finance Minister Sri Mulyani Indrawati said regions should take into consideration local economic conditions and the state of their industries when determining tax rates, to avoid negative impacts on the national economy.

It is expected most of the new taxes and retributions will already be effective by 2011.

With the new law, regional revenues will account for 24 percent of regional budgets, up from 19 percent this year, said Budi.

Lawmaker Nursanita Nasution, who helped deliberate upon the law, said the government could punish regions imposing bad taxes and retributions that would be detrimental to the economy.

"This provides some certainty," she said.

The law also states 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 second car.

Owners of single two-wheeled and three-wheeled vehicles will only have to pay between 1 and 2 percent tax.