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Plugging the Leaks, Keeping Bali Financially Afloat

Editorial: Why Governor Pastika's Desire to Put Hotel and Restaurant Taxes on Line is an Idea Long Overdue.

(8/21/2010) Bali's governor Made Mangku Pastika is not pleased. Despite promises made last year by the island's regencies and mayoraltys to introduce an on-line reporting and payment system for the 10% hotel and restaurant tax (PHR) tacked on to every accommodation and dining tab, no visible progress towards keeping that promise has been made. In defense of their lack of movement on the issue, regency officials claim that implementing an automated reporting payment system is "problematic."

Problematic? No doubt. It has become a long-standing and increasingly embarrassing "public secret" that regency officials are readily amenable to negotiating the calculation method and payment of PHR with hotel and restaurant owners. No less dismaying, money collected in cash every time a customer stays at a hotel in Bali or dines in a restaurant is often not submitted (even at negotiated levels) to the government, but kept and used as a no-interest loan to be paid at some indeterminate time in the future. These "delayed tax payments" are little more than the misappropriation of public funds held by businesses due and payable at the time of the transaction with the visiting tourist. Billions of rupiahs in deferred PHR payments remain in arrears at any given point in time.

Government officials in Bali continue to blame a lack of tax revenues as the stumbling block for financing the Governor's much-needed programs for free health care, mandatory education to grade 12 and essential infrastructure projects. At the same time, there is little doubt that the Rp. 900 billion (US$100 million) in PHR revenues from Bali generated in 2009 is grossly under-collected, perhaps by a factor of 3-4 times. Considering that the more than 5 million foreign and domestic tourists who visit the island and the 3 million plus island residents pay this tax every time they frequent a restaurant, pub or hotel, its unfathomable to imagine that, by extrapolating in reverse, total turnover in the islands large and documented tourism sector stands at only US$ 1 billion a year. These figures just don't add up. No way. No how.

Governor Pastika, eager to get on with his ambitious plans to make the island of Bali a better place to live for his fellow Balinese, is threatening to exercise his legal right to expropriate the tax collection authority from regencies and mayoraltys and place this function under direct control of the provincial government. We hope the government will turn that threat into action and assume both its legal and moral responsibility in order to increase tax revenues that will permit much needed health and educational programs to move ahead.

As an interim and complementary step, we also suggest that much of the blatant malfeasance currently surrounding the collection of much-needed PHR could be eliminated through transparency.

To that end, we'd like to see a major newspaper in Bali print a special insert section once every year listing all restaurants and accommodation providers and their PHR totals for the past twelve months. Such a step would immediately restrict the ability of officials to negotiate tax bills with business owners. Moreover, competitive and often proud local entrepreneurs would find it humiliating to see their under-stated tax payment total sitting side-by-side with competing business paying much more. Such a list would also automatically deter malfeasance by allowing restaurant and hotel employees to compare their employer's declared turnover with neighboring business and, more importantly, with the amount of service charge paid to them.

We hope Governor Pastika will ignore the protests of those struggling to preserve their slice of ill-gotten public tax revenues and move ahead with centralization of PHR collection to the provincial level. Any protests that may result will be necessarily short-lived, especially in the face the certain, sudden and dramatic increase in tax revenues collected from each regency and city across Bali.