Jakarta Governor Joko Widodo, a
potential candidate for Indonesian president, plans to boost the
capital’s budget by about 75 percent for this year by moving tax
collection online to tackle widespread evasion.
The Jakarta budget will reach $7.2 billion, from $4.1
billion in 2013, buoyed by online tax payments and greater
oversight, Widodo told Bloomberg Television. His administration
may need to scale back spending if collection falls short, with
the official budget proposal for Southeast Asia’s most populous
city less ambitious at 72 trillion rupiah ($5.9 billion).
Widodo may seek to replicate his tax policy across the
country if he runs for president of Indonesia, where the ratio
of tax to gross domestic product was 11.8 percent in 2011,
compared with 17.6 percent for Thailand, according to World Bank
data. Overhauling the tax system for the $151 billion national
budget will be a bigger challenge because of opposition from the
country’s oligarchs, said Keith Loveard, head of risk analysis
at Jakarta-based security advisory company Concord Consulting.
“We must build the new system and the bureaucracy must
follow the system,” Widodo, who is often referred to as Jokowi,
said in the Jan. 21 interview. “My vision is improving the life
of the people, in Jakarta,” said Widodo, who has yet to declare
if he will run for president.
The size of the archipelago and the complexities of the
multipayment system now in place may complicate the task, with
Indonesia ranked 137 out of 189 countries in a 2014 World Bank
survey on the ease of paying taxes. Weak governance is leading
to missed state revenue, New York-based Human Rights Watch said
in a November report on Indonesia.
Cutting Corruption
Widodo, 52, topped a poll by the Indonesian Survey Circle
(LSI) carried out Jan. 6-16, with about 35 percent of
respondents saying they would vote for him, according to the
Jakarta Globe on Feb. 3. Widodo has said the Indonesian
Democratic Party of Struggle’s (PDI-P) Chairwoman Megawati Soekarnoputri, a former president, will decide whether he runs.
Jakarta now has online systems for procurement and
budgeting as well, Widodo said, without giving details. “I’m
sure with this system we can decrease corruption,” he said.
Indonesia ranked 114th among 177 countries in a 2013
Transparency International survey on corruption perceptions.
“While moving things online wouldn’t necessarily capture
more of the ‘reluctant’ taxpayers, it might be genuinely helpful
by making it easier for people and businesses to file taxes,”
said Wellian Wiranto, an economist in Singapore at Oversea-Chinese Banking Corp. “I’m probably not alone in thinking I’d
rather not deal with the bureaucrats in person if given a
choice.”
Free Health
The tax system applies to hotels, restaurants, parking and
entertainment, Widodo said. National growth in the hotel and
restaurant industry was about 6 percent in the third quarter
last year, outstripping a 5.6 percent increase in total GDP, as
an emerging middle class takes advantage of rising wages to
spend on food and leisure.
Economic growth in the Jakarta province was stronger at
about 6.2 percent in the same period, supported by trade, hotels
and restaurants as well as real estate and finance, according to
local government data.
Widodo said he is using the administration’s cash for a
free health plan for over 3 million people, targeted at the
capital’s poor, projects to reduce the risk of flooding such as
deepening drainage canals, and longer-term efforts to beat
traffic jams by building a metro line and monorail.
“I’m sure in eight, nine years we can solve these
problems,” he said.
Market Hopes
Indonesia’s current government, led by Susilo Bambang Yudhoyono, who is unable to stand for a third term, has been
slow to improve infrastructure or implement major decisions such
as a fuel price increase and mineral ore export ban, said PT
Bank Danamon Indonesia’s chief economist Anton Gunawan.
The rupiah would probably rally and could strengthen to
about 11,000 per dollar by the end of the year if Widodo runs
for president, as a PDI-P government would be more adept at
handling the economy, he said. The rupiah is little changed so
far this year, one of the best performers among 24 emerging
market currencies tracked by Bloomberg.
Expectations for Widodo have been a supportive factor for
Indonesian stocks, said Jemmy Paul, an equities fund manager at
Sucorinvest Asset Management in Jakarta. The Jakarta Composite
Index (JCI) is up 2.5 percent this year.
Shoes Off
Widodo dressed in the standard khaki uniform for Indonesian
local bureaucrats when Bloomberg Television trailed him for the
day on Jan. 21. He began by talking to a crying woman whose home
was ruined by floods, after heavy rains led more than 48,000
people to be evacuated in the city last month.
After meetings with staff to discuss transport
improvements, election security and Japanese investment, Widodo
took his shoes off and rolled up his trousers to wade barefoot
through a flooded suburb near one of the city’s 13 rivers. He
was mobbed by crowds shaking his hand as he toured a hospital.
“He has some sort of aura that makes people feel close to
him,” said Emmy Kuswandari, a 40-year-old woman who works for a
paper company in the capital. “His presence is just at the
right time when we feel hungry for a leader who is honest and
can work well.”
The World Bank survey of 189 countries ranked Indonesia at
175th in terms of starting a business, alongside Ecuador and the
Central African Republic.
At an office where investors apply for permits, Widodo took
a ticket and sat down in the waiting room as visitors and staff
looked on, one of the spot checks he says he does to test
bureaucrats and show residents that officials are indeed
working. “I will check, I will check, I check and I check
again,” he said.
‘One-Stop Service’
Widodo wants to attract more investment in higher-value
manufacturing to the capital, touting the most educated
workforce in the world’s fourth most-populous nation and the
greater Jakarta region’s 28 million people. He said the “one-stop service” is transparent and can handle company, building
and trading permits, cutting the time needed to get permits to a
maximum of three days, from one month previously.
“For all of Jakarta’s current woes, he has demonstrated a
capacity to get to the root of the problems and has not been shy
about taking on vested interests,” said Concord’s Loveard.
“While Jokowi would almost certainly push for reform, it would
be unrealistic to expect too much.”
To contact the reporters on this story:
Neil Chatterjee in Jakarta at
nchatterjee1@bloomberg.net;
Haslinda Amin in Singapore at
hamin1@bloomberg.net
To contact the editor responsible for this story:
Rosalind Mathieson at
rmathieson3@bloomberg.net
Jakarta"s Jokowi Snares Tax Revenue in Poll Year: Southeast Asia
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