Transmigration in Indonesia -- Amended Regulatory Framework...

This is something that was written for en.hukumonline.com. The original can be found here.

The era of “reformasi” was the spur for many changes in Indonesia, and this includes the drive to amend the 1945 Constitution of the Republic. There have been four amendments to date. These amendments were enacted in the period between 1999 and 2002. Furthermore, the amendments have since required that other legislation (laws and regulations) also be amended to ensure that those pieces of legislation comply with the amended Constitution.

The previous law on Transmigration Law No. 15 of 1997, has been amended in order to comply with the Constitution as it now stands, particularly with respect to matters of regional autonomy.

The Amendment Bill on Law No. 15 of 1997 was passed by the House of Representatives (Dewan Perwakilan Rakyat / DPR) and is currently awaiting the signature of the president before it can be promulgated as law. The amendments focus almost exclusively on the decentralization of certain transmigration related authorities from the Central Government to the relevant Regional Governments. The amendments also endeavor to create a more conducive transmigration sector; conducive to investment.

Articles 7 – 9, 13 – 15, 25, 26, 29, 30, 32, 33, and 35 have been amended, as has the Title of Chapter VII. Additionally, Chapter IX and Article 34 have been repealed. Finally, three Chapters have been inserted and replace Chapter XI, specifically: Chapters XA, XB, and XC.

One of the most notable changes is that the authority to: determine, establish, and develop areas for transmigration has devolved to the relevant regional governments. This is notable for two reasons; this places greater administrative control on the regional governments themselves to be pro-active in providing support for the transmigration program and accountability.

In effect, the amendments would provide the opportunity to enterprising regional governments to either go it alone or enter into private / public partnerships to develop and exploit their regional potential by enhancing opportunities for transmigration. Whether this eventuates remains to be seen. Nevertheless, the potential for such a development is clearly available under the provisions of the amended law.

The new law provides for sanctions to be imposed on anyone who breaches the prevailing provisions. This is irrespective of whether the breach is conducted by a government official, a business entity, a transmigrant, or some other individual or group. Generally, the sanctions provide for:

• Oral / written warnings;
• Cancellation of licenses (for business entities), transmigrant status (for transmigrants), and / or the Minister of Labor and Transmigration (for groups of people); and
• Criminal sanctions. Not all of the amendments are significant in terms of size.

For example, the provisions of Chapter VIII have been amended to merely change one word; “guidance” (pembinaan) to “development” (pengembangan). Nevertheless, there is seemingly a significant difference in terms of what is required between providing guidance and facilitating development. Yet, the amendment is just one word.

The bill comes into immediate force once it is promulgated. Enactment requires the signature of the President. If the President fails to sign the bill into law then the bill will self-enact after 30 days pursuant to the 1945 Constitution.

Income Tax – An Amendment Bill

The amendment of the Income Tax Law has been in the pipeline for some time. However, the list of problems identified with the amendments runs to some 770 issues. This means that Commission XI of the House of Representatives (DPR) and the Work Committee set up to resolve these issues has plenty of work to do.

It is nevertheless expected that this work will be resolved by the end of 2008 and the amended legislation will be passed by the DPR. The general consensus is that the amendments are technical in nature and are unlikely to trigger a significant ideological or policy debate.

The amendments will see a reduction in the number of taxation levels from the current five to just four. The maximum rate of taxation will fall from 35% to 30%. Salaries up to IDR 50 million will be taxed at 5%, salaries between IDR 50 and IDR 250 million will be taxed at 15%, salaries from IDR 250 to IDR 500 million will be taxed at 25%, and salaries above IDR 500 million will be taxed at 30%.

The amendments would see the removal of the Fiscal Tax that is paid by residents leaving the country. This will be phased in commencing in 2009 and be in full operation from 2011. The idea of phasing out the fiscal tax is based on the assumption that people will obtain a tax file number. Therefore, those who already have a tax file number appear to be the most likely to see an immediate benefit from this initiative.

Other amendments include incentives for those making contributions to religious activities; incentives for listed companies; incentives for micro, small, and medium enterprises; the taxing of revenue not currently classed as taxable objects (such as the Bank Indonesia surplus), and incentives designed to make Indonesia an attractive destination for both domestic and foreign capital investments.

The amendments are expected to ensure that Indonesia has in place a modern, effective, and efficient tax code that will contribute significantly to national development.