What Is A Surtax?

Fiscal decentralisation is, in summary, a delegation of accountability and authority from the central government to local governments to regulate and make decisions in the fiscal sector. The authority includes the regulation of the aspects of revenues and expenditures.

The implementation of fiscal decentralisation in Indonesia is marked by the enactment of Law 25/1999. However, the era of fiscal decentralisation was not effectively implemented until 1 January 2001. In the development, Law 25/1999 was revoked and replaced by Law 33/2004.

Basically, Law 25/1999 and Law 33/2004 regulate the financial balance between the central government and local governments, among others, the regional authority to collect local taxes. This authority is strengthened by Law 34/2000 as amended by Law 28/2009 concerning Local Taxes and Local Charges.

After two decades, fiscal decentralisation has been subject to developments and dynamics in its implementation. As such, through the Draft Financial Relations between the Central Government and Local Governments Law, the government plans to adjust provisions related to fiscal decentralisation and local taxes to address various existing issues.

One of the proposed breakthroughs is the implementation of the surtax scheme. Three types of local taxes introduce surtaxs, namely Motor Vehicle Tax, Motor Vehicle Duty and Non-Metallic Mineral and Rock Tax.

As such, what is a surtax?

Definition

Referring to the Great Indonesian Dictionary, a surtax is an additional tax according to a certain percentage, usually for the interest of the local government treasury.

In line with that, the Draft Financial Relations between the Central Government and Local Governments Law defines a surtax as an additional tax levy according to a certain percentage.

As an additional tax levy, the subjects and taxpayers of the surtax abide by the tax subject to the surtax. Similarly, the surtax objects also abide by the taxable objects subject to the surtax.

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

However, in contrast to taxes in general, a surtax is not imposed based on the value of the transaction or the value of the taxable object. The surtax base is the amount of tax payable subject to the surtax.

This implies that a surtax is calculated by multiplying the surtax rate by the amount of tax subject to the surtax.

For example, if the government sets the Motor Vehicle Duty surtax rate at 30%, the rate is multiplied by the amount of Motor Vehicle Duty payable (the Motor Vehicle Duty rate multiplied by the tax base).

Thus, the Motor Vehicle Duty surtax results in an increase in the taxpayer’s burden by a maximum of 6% (the surtax rate of 30% multiplied by the maximum Motor Vehicle Duty rate of 20%).

However, in the Draft Financial Relations between the Central Government and Local Governments Law, the government plans to reduce the rates of Motor Vehicle Tax, Motor Vehicle Duty and Non-Metallic Mineral and Rock Tax.

The rates are adjusted to prevent the taxpayers’ burden from increasing significantly, even relatively fixed.

Further, to simplify administration, a surtax will be collected simultaneously with the taxes subject to the surtax. The addition of the Non-Metallic Mineral and Rock Tax surtax for provinces is expected to strengthen the permit issuance and regional mining supervision functions.

On the other hand, the Motor Vehicle Tax and Motor Vehicle Duty surtax schemes are essentially a diversion from the provincial tax revenue sharing. This is because the provincial tax revenue sharing mechanism to regencies/municipalities has so far caused delays because it is distributed periodically.

For this reason, the surtax scheme has been introduced with the aim that when the taxpayers pay provincial taxes, the regency/municipal share of the taxes may be received in parallel instantly.

Vice versa, Non-Metallic Mineral and Rock Tax surtax from regency/municipal taxes to provinces may be received on time.

The surtax scheme was proposed by the government through the Draft Law concerning the Increase in Local Own-Sourced Revenues in 2018. In addition, the surtax scheme has also been implemented as a type of local tax until 1997, including gasoline sales surtax and household surtax.

In the international landscape, the tax scheme is similar to the term piggyback tax. In summary, piggyback tax is a tax designed as a certain percentage of other taxes (Sarokin, 2020).

Conversely, Garner Jr. (1975) defines piggyback tax as the collection of taxes by one level of government for the interest of another level of government. For example, in the United States, state governments collect a certain percentage of taxes on the federal state income tax (Lohman, 2003).

On the other hand, McLure, Charles E (1983) defines piggyback tax as the authority of local governments to tax the national tax base in addition to taxes already imposed by the central government. In other words, on one tax base, 2 types of tax rates are imposed.

Conclusion

In essence, a surtax is an additional levy based on a certain percentage of a type of tax. As an additional levy, the surtax tax base is the amount of tax subject to the surtax.