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MINISTRY OF FINANCE DIRECTORAT GENERAL OF FISCAL BALANCE

Jakarta, 7 July 2010

POLICY

DIRECTION OF

INTERGOVERNMENTAL FISCAL TRANSFER IN INDONESIA

DISKUSI/DIALOG MENGENAI APBN LEBIH DALAM

1Prepared & Presented by Pramudjo-Director of Balance Fund-MoF-081513374488

Concept of FiscalDecentralization

Legal Basis

Problem

Alternative Solutions

Profile Map of Regions

Transfer to Region

Utililization of Fund

Disbursement Method

Fund Channeling

2

Devided into 33 provinces

Devided into 491 regions

Fiscal

Decentralization

Delegation Transfer Fund

3

Indonesia Archipelago

Country with : thousands of islands (more than 17.000 islands) 33 provinces, 398 regions, and 93 cities ( 524 local governments) 5.271 km length, 2.210 km width , land area 1.919.440 km2 massive population :

more than 240.000.000 people (Estimate Census 2010) 231.369.499 people (Data for General Allocation Grant Formula 2010)

Sumatera

Java

JakartaKalimantan

Bali

Sulawesi

Papua

4

Law No. 32 Year 2004 regarding Local Governance

Law No. 33 Year 2004 regarding Fiscal Balance between Central and Local Govermant

Government Regulation No. 55 Year 2005 regarding Balance Fund

Ministrial of Finance Decree No. 21 Year 2009 regarding Implementation and Accountability of Transfering Fund to Region

5

Horizontal Fiscal

Imbalance

Imbalances among

Regions due to

differences of

Characteristics and Conditions

Vertical Fiscal

Imbalance

Population

Areas

Natural Resources

Financial Needs & Capacity

Big Problems

6

CENTRAL GOVERNMENT

LOCAL GOV

LOCAL GOV

7

SERVING PEOPLE

MANAGING & DEVELOPING

AREAS

PROVIDING SERVANT & MANAGER

8

SERVING PEOPLE

NUMBER OF PEOPLE

CONDITION OF PEOPLE

ECONOMY ACTIVITIES

PUPOLATION

HUMAN DEVELOPMENT

INDEX

GROSS DOMESTIC REGIONAL PRODUCT

General Allocation Grant

Revenue Sharing On Taxes

9

WIDE OF AREAConstruction

Expensiveness Index

GROSS DOMESTIC REGIONAL PRODUCT


Revenue Sharing On Taxes

Specific Allocation Grant 10

SERVANT&

MANAGER

POPULATION OF LOCAL

GOVERNMENT OFFICERS

SALARY OF LOCAL

GOVERNMENT OFFICERS


11

• To Minimize Problems

Minimizing gap between central and

local government

Reducing fiscal

imbalance among regions

Equalizing public service

provision gap among

regions

Vertical Fiscal

Imbalance

Horizontal Fiscal

Imbalance

Horizontal Fiscal

Imbalance

12

Transferring FundTo Regions

13

Balance Fund

Special Autonomous& Adjustment Fund

Revenue Sharing (DBH)

General Allocation Grant (DAU)

Specific Allocation Fund (DAK)

Spec Auto For PAPUA

Spec Auto ACEH

Additional Spec Auto Fund For Infrastructure in PAPUA

Grant For Enhancing Income of Teachers

Spec.AutoFund

AdjustmentFund

DBH Property Tax

DBH Income Tax

DBH Forestry

DBH General Mining

DBH Fishery

DBH Oil&Gas

DBH Excise

DBH Tax

DBH Natural Resource

DBH Fee Acquisition

Additional Spec Auto Fund For Infras in PAPUA BARAT

Spec Auto PAPUA BARAT

DBH Geothermal

Fund For Local Performance Incentive

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Central Gov Spending For Line Ministries Rp418,0 T (39,9%)

Line Ministries Spending in Regions Rp154,7 T (14,07%)

14,07%

Transfer To Regions Rp322,40 T (30,77%)

30,77%Subsidies Rp158 T (11,93%)

Grant For Societies Rp34,8 T (3,33%)

39,90%

3,33%

11,93%

Portion of Transfer in Budget Year 2010

15

Total National Budget goes to regions 60,1%

129,7 150,8

226,2

253,3

292,4 309,3

322,4

0

100

200

300

400

2004 2005 2006 2007 2008 2009 APBNP

2010 APBN

Triliun Rp

334,3

2010 RAPBN-P

Revenue Sharing

General Allocation Grants

Specific Allocation Grant

Special Autonomous Fund

Trend of Transfer Year 2004 - 2010

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Revenue Sharing

General Allocation

Grant

Specific Allocation

Grant

Trilogy: Type of group consisting of three related units to develop one theme

When Revenue Sharing increase General & Specific Allocation may decrease

The theme is to minimize fiscal imbalance between regions or to maximize fiscal equalization

This policy is accommodated in the formula & criteria of grants

NO. Items

% PROPORTION

REGION PROV REGION/CITY PRODUCER

OTHER REGION/CITY WITHIN PROV

1. Property Tax 90% 16,2% 64,8%

2.Fee Acquisition on Land & Building

80% 16,0% 64,0%

3 Income Tax 20% 8,0% 12,0%

4 Excise on Tobacco Products 2%

Notes:1. There will be no revenue sharing from Fee Acquisition on Land and

Building in 2011, because it will become Local Tax based on Law #29 year 2009

2. The Law also regulate Property Tax managed by regions started year 2013

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NO. Items

% PROPORTION

REGION PROV REGION/CITY PRODUCER

OTHER REGION/CITY WITHIN PROV

1. FORESTRY

A. IHPH 80% 16% 64% -

B. PSDH 80% 16% 32% 32%C. REFORESTATION 40% - 40% -

2. GENERAL MINING

A. LAND RENT KAB/KOTA PRODUCER 80% 16% 64% -

B. LAND RENT PROVINCE PRODUCER 80% 80% - -

C. ROYALTIY KAB/KOTA PRODUCER 80% 16% 32% 32%

D. ROYALTY PROVINCE PRODUCER 80% 26% - 54%

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CONTINUED

NO ITEMS%

PORTION REGION

PROPORTION

PROVREION/CITY

(PRODUCER)

OTHER REGION/CITY

WITHIN PROV*)

3. FISHERY**) 80%

4. OIL

A. From Region (Producer) 15,5%

15% 3% 6% 6%

0,5% ***) 0,1% 0,2% 0,2%

B. From Province (Producer) 15,5%

15% 5% - 10%

0,5% ***) 0,17% - 0,33%

5 GEOTHERMAL 80% 16% 32% 32%

The portions of Gas 30,0% (6% - 12% - 12%) + 0,5% (0,1% - 0,2% - 0,2%) or (0,17% - 0,33%) *) Equally Shared ; **) Equally Shared To All Region ; ***) Directed Utilizing For Basic Education

NOTES : 20

Region

Province

Region (Producer)

other regions within Prov

Utilizing additional portion for funding program/activity of basic education in

regions

Province

Region (Producer)

other regions within Prov21

Local Own Revenue

Rev Sharing on Taxes

Population Index

Wide Area Index

Construction Expensiveness

Index

Human Development

Index

GDRP per Capita

FISCAL NEEDS

Fiscal Capacities

FISCAL GAP FISCAL GAP

Basic Allocation

Civil Servant Salary

GENERAL ALOCATION

GRANT

Rev Sharing on Natural R

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23

Basic Alocation

FiscalNeeds

FiscalCapacities

Civil Servant Salary

Population

Mainland & Ocean Area

IKK

IPM

GDRP PER CAPITA

OSR

DBH Tax

DBH Natural Resource

Region & MOF

National Statistic Board

Ministry of Home Affair




Region & MOF

MOF

MOF

TBR Region & MOF

Civil Servant Formation MENPAN / BKN

T- ½

T- ½

T-1

T-1

T-1

T-2

T-2

T-2

T-2

T-2

T-2

Specific Criteria

General Criteria

Technical Criteria

Indicated by number of damage local infrastructure

Specific Allocation Grant Criteria

Indicated by condition and

characteristics of regions

Indicated by local fiscal capacity

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National Average of Local Fiscal Capacity

Infrastructure condition (damage, etc)

Local Fiscal Capacity (LFC)

Characteristic of Regions: Specific Autonomy Region under developed Region potentially damaged by disaster etc

R1 R2 R3 R4 R5

Notes:1. Regions R2, R4, and R5 will potentially receive

Specific Allocation Grant (because their LFC are under the national average of LFC (General Criteria)

2. Regions R1 and R3 may receive the allocation when they have certain characteristic (Special Criteria)

3. When Region R1 and R3 have no characteristics, they still may receive allocation if there are massive number of local infrastructures in very bad condition (damage) (Technical Criteria)

4. All data and calculation of allocation every region are discussed by Gov (MoF) and Parliament 25

Special Allocation Grants Sectors 2010

No Sectors & Unit in Charge in Region

1 Education School Committee/ Education Agency

2 Health Hospital / Health Agency

3 Road and Bridge Infrastructure General Work Agency

4 Irrigation Infrastructure General Work Agency

5 Drink Water Infrastructure General Work Agency

6 Sanitation Infrastructure General Work Agency

7 Local Government Office Building Secretariat of Local Gov

8Marine and Fishery Fishery

Agency

9 Agriculture Agriculture Agency

10Environment Environment

Agency

11 Family Planning Population/Family Planning Agency

12Forestry Forestry

Agency

13 Village Infrastructure Transportation Agency

14Trade Trade

Agency

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■ Equal to 2% of National General Allocation Grant (DAU) Ceiling, allocated to Prov Aceh, and Prov Papua + Prov Papua Barat .

■ Additional Infrastructure Fund in context of Special Autonomy for Prov Papua + Prov Papua Barat .

■ Transferred to regions in 4 phase (15%, 30%, 40%, and 15%) with MoHA recommendation

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Local Fiscal Management Criteria1. Local Own Revenue (LOR) increase above the

national average of LOR increase2. Increasing level of Auditor Opinion on Local

Fiscal Report (Qualified or Unqualified)3. Increasing on Human Development Index (HDI)

above the national average of HDI increase4. Local regulation of Local Budget have been

finalized on time (not more than end of December before budget year

Local Economy and Welfare Performance Criteria5. Local Economic Growth Index (LEGI) increase

above the national average of LEGI increase6. Local Inflation (LI) decrease more than the

national average of LI decrease7. Poverty Index (PI) decrease more than the

national average of PI decrease 8. Unemployment Index (UI) decrease more than

the national average of UI decrease

Fund for Local Performance Incentive (FLPI)

FLPI is given to local government (province, region, and city) with very good performance in increasing local fiscal management, local economic growth, and decreasing in local inflation, poverty, and unemployment

In 2009 there are 9 of 33 provinces and 45 of 491 regions/cites receive FLPI which will be transferred within 2010

The Objective of this fund is to push forward local government consistently increase quality of local fiscal management, and support effort to serve people better

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Fund For Enhancing Teacher Income

GRANT

Providing additional teacher salary based on the qualification of profession.

Certificate of Profession Qualification is issued by Government

The amount of additional salary is equal to the amount of main salary

Allocation to region based on population of teacher with certificate

Teacher with no Profession Certificate

Teacher with Profession Certificate

Providing additional teacher salary with no qualification of profession certificate

There is certain amount of additional salary received by teacher per month

This additional fund will be stopped when teacher s reach condition to receive certificate of profession

Allocation to region based on population of teacher with no certificate. 29

Fund Channeling of Transfer to Region

Direct transfer from National Bank Account to Regions Bank Account.

Support utilization of local treasury single account

Support to finalize local regulation of local budget No letter of application needed, but reports of local

account disbursement support local disbursement and reporting sent to Central Gov (MoF) 30

Cash

Realization of Property Tax in

Treasury Account

16,2% directly distributed to Province Account weekly every Friday) by the receiver bank

64,8% directly distributed to Province Account weekly every Friday) by receiver bank

9% for cost of levy 10% redistributed

• 6,5% equally to regions & cities (not province)

• 3,5% as incentive fund to regions and cities with over target realization

Cash Realization

of Acquisition of L & B in Treasury

Account

16% directly distributed to Province Account weekly every Wednesday) by receiver bank

64% directly distributed to Province Account weekly every Wednesday) by receiver bank

20% redistributed equally to regions & cities (not province)

RSh Property Tax & RSh Acquisition of Land & Building Transfer

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RSh Property Tax of Central Portion redistributed equally to region

25% 50%

Definitive Allocation

minus Stage 1 and 2

Stage 1 Stage 2

Stage 3

From estimated allocation on April

From estimated allocation on Agustus

November

25% 25%Definitive Allocation

minus Stage 1 and 2

Stage 1 Stage 2Stage 3

RSh Acquisition of Land and Building of Central Portion redistributed equally to region 32

Tentative Allocation


Definitive Allocation minus transfer of quarter I, II, dan III

Quarter I


Quarter II

Quarter III

Quarter IV 33

20%

30%

30%

Remaining between definitive allocation with transfer quarter I, II, III.

from Tentative Allocation

Stage 2

Stage 1

Stage 3

Stage 4

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Estimated Allocation

Estimated Allocation

Quarter I

Realization of Non Tax – Natural Resources Revenue Revenue (x) RSh portion (minus) transfer of quarter I

and quarter II

Quarter II

Quarter III

Quarter IV

Realization of Non Tax – Natural Resources Revenue Revenue (x) RSh portion (minus) transfer of quarter I,

quarter II and quarter III35

January

February To

December

1/12 every month

The first transfer is in early January

The second transfer is in the end of January

The third transfer etc are transfered every end of months (February to November)

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30%

45%

25%

Regions should submit Local Regulation of Local Budget (current year) and report of DAK realization previous year (the first DAK Stage 1 are transferred in February)

DAK absorption report of shown Stage 1 up to 90% and letter of expense statement, plus statement of allocating counter part fund 10% of DAK

DAK absorption report of shown Stage 2 up to 90% and letter of expense statement (the last DAK

Stage 1

Stage 2

Stage 3

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RSh onTaxes except DBH Excise, RSh on Natural Resources except

Reforestation, and General Allocation Grant (DAU)

Utilized for funding activities in line with needs and local priorities

RSh Excise 0n Tobacco Products, RSh Reforestation, and Specific Allocation Grant (DAK)

Utilized for funding activities in line with certain programs/activities/sectors/fields

BLOCKGRANT

SpecificGRANT

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Thanks a lot

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Please visit our website :

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