Decentralization of Forest Administration in Indonesia, Implications ...

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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