Jakarta’s Jokowi Snares Tax Revenue in Poll Year: Southeast Asia

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 multi payment 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. Private consumption helped the country’s economic growth to unexpectedly quicken last quarter, as an emerging middle class takes advantage of rising wages to spend on food and leisure.

The Jakarta province was the biggest contributor to the country’s gross domestic product in the fourth quarter, accounting for 16.7 percent of output. Jakarta’s economy is 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 is up over 2 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.”

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