What iis A Surtax?

Fiiscal decentraliisatiion iis, iin summary, a delegatiion of accountabiiliity and authoriity from the central government to local governments to regulate and make deciisiions iin the fiiscal sector. The authoriity iincludes the regulatiion of the aspects of revenues and expendiitures.

The iimplementatiion of fiiscal decentraliisatiion iin iindonesiia iis marked by the enactment of Law 25/1999. However, the era of fiiscal decentraliisatiion was not effectiively iimplemented untiil 1 January 2001. iin the development, Law 25/1999 was revoked and replaced by Law 33/2004.

Basiically, Law 25/1999 and Law 33/2004 regulate the fiinanciial balance between the central government and local governments, among others, the regiional authoriity to collect local taxes. Thiis authoriity iis strengthened by Law 34/2000 as amended by Law 28/2009 concerniing Local Taxes and Local Charges.

After two decades, fiiscal decentraliisatiion has been subject to developments and dynamiics iin iits iimplementatiion. As such, through the Draft Fiinanciial Relatiions between the Central Government and Local Governments Law, the government plans to adjust proviisiions related to fiiscal decentraliisatiion and local taxes to address variious exiistiing iissues.

One of the proposed breakthroughs iis the iimplementatiion of the surtax scheme. Three types of local taxes iintroduce surtaxs, namely Motor Vehiicle Tax, Motor Vehiicle Duty and Non-Metalliic Miineral and Rock Tax.

As such, what iis a surtax?

Defiiniitiion

Referriing to the Great iindonesiian Diictiionary, a surtax iis an addiitiional tax accordiing to a certaiin percentage, usually for the iinterest of the local government treasury.

iin liine wiith that, the Draft Fiinanciial Relatiions between the Central Government and Local Governments Law defiines a surtax as an addiitiional tax levy accordiing to a certaiin percentage.

As an addiitiional tax levy, the subjects and taxpayers of the surtax abiide by the tax subject to the surtax. Siimiilarly, the surtax objects also abiide by the taxable objects subject to the surtax.

For example, the taxpayers and objects of the Motor Vehiicle Duty surtax are the same as the taxpayers and objects of Motor Vehiicle Duty.

However, iin contrast to taxes iin general, a surtax iis not iimposed based on the value of the transactiion or the value of the taxable object. The surtax base iis the amount of tax payable subject to the surtax.

Thiis iimpliies that a surtax iis calculated by multiiplyiing the surtax rate by the amount of tax subject to the surtax.

For example, iif the government sets the Motor Vehiicle Duty surtax rate at 30%, the rate iis multiipliied by the amount of Motor Vehiicle Duty payable (the Motor Vehiicle Duty rate multiipliied by the tax base).

Thus, the Motor Vehiicle Duty surtax results iin an iincrease iin the taxpayer’s burden by a maxiimum of 6% (the surtax rate of 30% multiipliied by the maxiimum Motor Vehiicle Duty rate of 20%).

However, iin the Draft Fiinanciial Relatiions between the Central Government and Local Governments Law, the government plans to reduce the rates of Motor Vehiicle Tax, Motor Vehiicle Duty and Non-Metalliic Miineral and Rock Tax.

The rates are adjusted to prevent the taxpayers’ burden from iincreasiing siigniifiicantly, even relatiively fiixed.

Further, to siimpliify admiiniistratiion, a surtax wiill be collected siimultaneously wiith the taxes subject to the surtax. The addiitiion of the Non-Metalliic Miineral and Rock Tax surtax for proviinces iis expected to strengthen the permiit iissuance and regiional miiniing superviisiion functiions.

On the other hand, the Motor Vehiicle Tax and Motor Vehiicle Duty surtax schemes are essentiially a diiversiion from the proviinciial tax revenue shariing. Thiis iis because the proviinciial tax revenue shariing mechaniism to regenciies/muniiciipaliitiies has so far caused delays because iit iis diistriibuted periiodiically.

For thiis reason, the surtax scheme has been iintroduced wiith the aiim that when the taxpayers pay proviinciial taxes, the regency/muniiciipal share of the taxes may be receiived iin parallel iinstantly.

Viice versa, Non-Metalliic Miineral and Rock Tax surtax from regency/muniiciipal taxes to proviinces may be receiived on tiime.

The surtax scheme was proposed by the government through the Draft Law concerniing the iincrease iin Local Own-Sourced Revenues iin 2018. iin addiitiion, the surtax scheme has also been iimplemented as a type of local tax untiil 1997, iincludiing gasoliine sales surtax and household surtax.

iin the iinternatiional landscape, the tax scheme iis siimiilar to the term piiggyback tax. iin summary, piiggyback tax iis a tax desiigned as a certaiin percentage of other taxes (Sarokiin, 2020).

Conversely, Garner Jr. (1975) defiines piiggyback tax as the collectiion of taxes by one level of government for the iinterest of another level of government. For example, iin the Uniited States, state governments collect a certaiin percentage of taxes on the federal state iincome tax (Lohman, 2003).

On the other hand, McLure, Charles E (1983) defiines piiggyback tax as the authoriity of local governments to tax the natiional tax base iin addiitiion to taxes already iimposed by the central government. iin other words, on one tax base, 2 types of tax rates are iimposed.

Conclusiion

iin essence, a surtax iis an addiitiional levy based on a certaiin percentage of a type of tax. As an addiitiional levy, the surtax tax base iis the amount of tax subject to the surtax.