The Jakarta administration should not increase local taxes before fixing flaws in its collection system, a budget observer says.
“Better to improve the tax system before increasing taxes, because people never know where their taxes go or how much it makes it to the city treasury,” Ucok Sky Khadafi from the Indonesian Forum for Budget Transparency (Fitra) told The Jakarta Post on Tuesday.
He said the forum conducted a study on the city budget in 2002-2003 and found that around Rp 500 million (US$55,000) was lost to leaks in terminal retribution only.
“How about parking for example? It is no longer a secret that many parking fees do not reach the city’s coffers.
“There are many unorganized collecting systems and questionable officers running them,” Ucok said.
“If it is the necessary step I suggest the increase is not too large, because even though it is aimed at middle to upper incomes, the poor will also feel the effect,” he said.
Currently the Regional Legislative Council is discussing a proposal from city administration to increase tax on vehicles, fuel, parking and entertainment.
The proposal also includes a tax of between 10 and 75 percent on shops in hotels and catering businesses.
The maximum rate allowed by the 2009 Regional Taxation and Retribution Law is 75 percent.
City councillors and administration officials said earlier the policy would improve regional income.
The administration relies heavily on local tax revenue, which accounts for more than 70 percent of its total regional revenue, to finance its annual programs.
For a city where the main functions are the business and service sectors, income is disproportionately drawn from consumption taxes.
Last year, the city recorded a total income of Rp 9.85 trillion from local taxes.
The biggest single tax revenue came from vehicle ownership, which reached Rp 6.1 trillion.
The smallest tax contribution was groundwater, which recorded Rp 182 billion, while sales tax on entertainment reached Rp 320 billion.
Jakarta councillor Andyka said the administration’s tax increase proposal had not yet been approved adding the administration did not include a study on the foreseeable effects of the tax hike.
“We want to know how much it will increase the regional income and how much it will affect residents both economically and socially, including its impact on businesses,” he said.
Nightclubs and discotheques are among those set to receive the biggest tax hikes as patrons mostly come from the upper and middle-class and the expatriate community.
Discussion is also underway on the reduction of taxes on karaoke lounges and other family recreational due to their popularity among residents.
Another councillor, Nurmansyah Lubis said he and his colleagues at the Prosperous Justice Party considered it would be better to increase entertainment taxes on night clubs and bars, because patrons are considered to have higher incomes.
“We also think it will be better to not to increase tax on vehicles, but rather impose progressive taxes,” he said.
He added that income from vehicle taxes were supposed to be distributed 10 percent toward road development and 20 percent to public transportation.
He revealed discussions on whether to approve the administration’s proposal was still being debated among council members.
“We will have a final discussion about the tax hikes on entertainment, vehicles and vehicle ownership tomorrow,” he said.
A bylaw regulating tax increases are among the priority bylaws expected to be passed by Jakarta Council this year.
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