Impact of Regulating Inadequate Local Tax Types on Fiscal Independence

Abstract

The autonomy of a region is measured by its ability to generate and finance income without relying on the central government. The effective operation of the government necessitates a budget and different regions possess the authority to impose taxes in generating revenue. This is stipulated in Law Number 1 of 2022 pertaining to the Financial Relations Between the Central and Local Governments. In this Law, local governments are prohibited from levying new types of taxes. Furthermore, only the specified types can be selected and should be established in the form of local regulations (Perda). The selection requires that the tax objects exist and have sufficient potential to increase Local Revenue (PAD) and fiscal independence. Therefore, this study aimed to understand and analyze the meaning of regulating tax types for autonomous regions and to analyze the implications of inadequacy on fiscal independence. Normative-juridical research type is used with legislation, conceptual, and historical approaches. The result shows that the implication of inadequate tax types to be collected can weaken fiscal decentration. This is because the inadequate tax object does not make a significant contribution to increasing PAD. Therefore, a study in the form of a feasibility study is needed to map the potential of local taxes before stipulating the type in the regulation.