Propety Tax Reform in Indonesia.docVIP

THE ASIA PACIFIC JOURNAL OF PUBLIC ADMINISTRATION VOL 26, NO 1 0UNE 2004)- 71-90 Property Tax Reform in Indonesia: Emerging Challenges from Decentralisation Roy Kelly Indonesia is in the midst of an exciting decentralisation reform. Expenditure and revenue responsibilities have been rationalised, granting Dati II local governments responsibility for virtually all public services. Although devolved revenues have initially funded the newly devolved local responsibilities, there is increased concern that additional local revenues may be needed to further sustain the decentralisation process. One possibility would be to restructure the property tax from a pure shared tax to a more local oriented tax. This would involve granting local tax rate discretion to promote autonomy and accountability, allocating property tax revenues entirely id local governments based on property location to promote ownership of the property tax, and adjusting the relative co-administrative responsibilities between central and local governments. All three required changes could be implemented immediately, while retaining the benefits of the current legal and institutional shared tax structure pending a more thorough review of the broader revenue allocation decisions. Introduction Indonesia is experiencing an exciting fiscal decentralisation reform, rationalising expenditure and revenue assignments, and introducing a new intergovernmental grant structure. Dati II local governments are now responsible for virtually all public services with the exception of defence and security, foreign policy, monetary and fiscal policy, the judiciary and religious affairs. The previous Subsidi Daerah Otonom (SDO) salary grant for civil servants and the package of Inpres grants have been replaced by a new Basic Allocation Grant (Dana Alokasi Umum (DAU)), while the central government tax sharing arrangements with provincial and local governments have been expanded to include a