Decentralization of Forest Administration in Indonesia, Implications ...

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Ida Aju Pradnja Resosudarmo, Christopher Barr, Ahmad Dermawan, and John McCarthy 61 Table 4.1: Revenue Sharing Among Central, Provincial, and District/Municipality Governments Prior to 1999 Decentralization and Fiscal Balancing Laws (by percentage) Revenue Source Central Provincial District or Government Government Municipality Oil 100 0 0 LNG a 100 0 0 Mining: Land-rent 20 16 64 Mining: Royalty 20 16 64 Forestry: IHPH b 30 56 14 Forestry: PSDH c 55 30 15 Fishery 100 0 0 Land and Building Tax 19 16.2 64.8 Land/Building Transfer Fee 20 16 64 Personal Income Tax 100 0 0 Sources: Ditjen PKPD (2004), Ford (2000), Prakosa (1996), Shah and Qureshi (1994), various government regulations Note: a LNG = Liquefied Natural Gas b IHPH = Iuran Hak Pengusahaan Hutan (HPH License Fee) c PSDH = Provisi Sumber Daya Hutan (Forest Resource Rent Provision) During the New Order period, regional governments had only limited opportunities for raising their own revenues. Through the 1980s and much of the 1990s, for instance, governments at both the provincial and district levels imposed numerous taxes and fees, although very few of these had much revenue potential (Devas 1989). 2 In 1997, the central government further restricted the capacity of regional governments to generate their own revenues with the introduction of Law 18/1997 on Regional Taxes and Levies. Law 18/1997 stipulated that provincial and district governments could only impose taxes and levies that were included on a specified list formulated by the Ministry of Finance and that any changes to this list would only take effect if they were approved by the Ministry (World Bank 2003). For district governments, the list of authorized taxes covered six relatively minor sources of revenue: C-grade mining (for sand, gravel, etc.); surface and ground water; advertisements; hotels and restaurants; entertainment; and street lighting. Provincial and district governments were also permitted to obtain their own revenues through the operation of regional government enterprises (Badan Usaha Milik Daerah, BUMD). Many provincial and district government formed BUMD to manage commercial operations (such as hotels and entertainment facilities) and public utilities (such as water supply) (Devas 1989). However, most of these enterprises were notorious for being poorly managed and, in many cases, for generating economic losses rather than positive revenues.
62 Fiscal Balancing and the Redistribution of Forest Revenues 4.3 Distribution of Forestry Revenues before Decentralization The New Order state’s framework for resource rent capture in Indonesia’s timber sector involved the collection of a variety of fees and royalties, which were modified both quantitatively and qualitatively over time. Although the central government controlled a majority of the tax revenues collected from forestry producers, the distribution of these revenues among the national, provincial, and district governments was arguably far more equitable than that found in other natural resources sectors. For instance, Jakarta maintained firm control over 100% of the taxes paid by producers in the oil and gas sector, although the central government redistributed a substantial portion of these revenues through its development spending in the regions. By contrast, in forestry the central government received just 55% of the revenues from timber royalties and only 30% from timber concession licenses (see Table 4.1). During the New Order period, the government collected three major taxes and fees that were specific to the forestry sector. These taxes and fees are still levied under decentralization, and forestry companies continue to pay them directly to central government accounts. These included the following: 1) HPH License Fee (Iuran Hak Pengusahaan Hutan, IHPH): a one-time area-based fee paid at the time the HPH timber concession contract is initially issued. The fee is based on the size of the concession area and on whether the HPH permit is new or being renewed. In 1998, the fee for a new HPH concession in Kalimantan was Rp 50,000 per ha, equivalent to a one-time payment of US$ 500,000 for a 100,000 ha concession. 3 2) Forest Resource Rent Provision (Provisi Sumber Daya Hutan, PSDH): a volumebased royalty on each cubic meter of timber harvested. In 1998, the rate was set at 6% of a reference price defined biannually by the Ministry of Industry and Trade. In 1999, the rate increased to 10% and has since remained unchanged. 4 The reference price for Shorea spp. logged in Sumatra, Kalimantan, Sulawesi and Maluku, for example, was set at US$ 59.00 per m 3 during the second half of 1998. 5 Timber companies were, therefore, required to pay 6%, or $ 3.54 per m 3 , regardless of the actual market price achieved. Prior to 1998, the PSDH was known as the ‘Forest Product Royalty’ (Iuran Hasil Hutan, IHH). 3) Reforestation Fund (Dana Reboisasi, DR): a volume-based fee on each cubic meter of timber harvested. This fee was initially introduced in 1980 as a bond to support reforestation and forest rehabilitation activities. 6 In 1989, however, it was restructured as a nonrefundable forest levy. The size of this fee varies according to the type, grade, and location of the wood harvested. The rate is set in US dollars (except in 1998, when it was denominated in rupiah). For example, prior to 1998 (and currently), the DR fee for Shorea spp. with a diameter of 50 cm and above, harvested in Kalimantan, was US$ 16 per m 3 . 7 Timber concession-holders were also required to pay a ‘Forest Village Community Development’ fee (Bina Desa or Pembangunan Masyarakat Desa Hutan, PMDH, after 1995). This was a volume based fee of approximately US$ 5.00 per m 3 in 1998, which was to be spent on community development initiatives for villagers living
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Decentralization of Forest Administ
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National Library of Indonesia Catal
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iv 4.5 Forest Revenue Sharing 69 4.
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Preface Indonesia is currently ente
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Acknowledgements This study is base
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Abbreviations AAC ACIAR ADEKSI APBD
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IPHHBK IPHHK IPJL IPK IPKR IPKMA IP
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Glossary Adat, customary or traditi
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Forests and Decentralization in Ind
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112 The Impacts of Decentralization
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122 Decentralization and Recentrali
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References Agrawal, A., Ostrom, E.
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136 References Casson, A. 2001a. De
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138 References GFW/FWI. 2002. The S
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140 References Manurung, E. G. T.,
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142 References Ribot, J. C. 2002. L
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144 References Van Zorge Report. 20
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146 Annex 1. Timeline of events tha
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148 Annex 1. Timeline of events tha
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Annex 2 Indonesian Laws and Regulat
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152 Annex 2. Indonesian Legislation
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154 Annex 2. Indonesian Legislation
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156 Annex 3. Distribution of Shared
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Since the collapse of Soeharto’s
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