Local Governments Will Enjoy IDR 3 trillion Fiscal Incentives, Here are the Conditions

Minister of Finance Sri Mulyani will provide fiscal incentives for the best-performing regions worth IDR 3 trillion. The provisions are contained in Minister of Finance Regulation (PMK) Number 97 of 2023 which will come into effect on 25 September 2023.

The regulation regulates four performance categories that must be fulfilled by each Local Government to get the incentive. First, the performance category of eliminating extreme poverty. Second, the performance category of stunting reduction. Third, the performance category of using domestic products. Fourth, the performance category of accelerating local government spending.

The incentive allocation given for each category is IDR 750 billion.

Performance assessment

Each criterion will be measured using different performance assessment standards, including:

1. Poverty Eradication Category

The poverty eradication category is assessed using a number of criteria, as follows:

• Data on the realization of extreme poverty funding expenditure using a number of measures, sourced from the Ministry of Finance;
• Performance data on the use and verification of data to accelerate poverty reduction, sourced from the Coordinating Ministry for Human Development and Culture and the National Team for the Acceleration of Poverty Reduction; and
• Performance data on regional poverty reduction, sourced from the Ministry of Home Affairs and the National Team for the Acceleration of Poverty Reduction.

The data used to assess regional performance in this category comes from the Coordinating Ministry for Human Development and Cultural Affairs and the National Team for the Acceleration of Poverty Reduction (TNP2K).

2. Stunting Reduction Categories

The ability of local governments to reduce stunting is measured by two indicators. First, data on the weighted realization of stunting marking expenditure sourced from the Ministry of Finance. Second, performance data on the acceleration of stunting reduction sourced from the National Population and Family Planning Board, the Ministry of Home Affairs, and the Ministry of Health.

3. Category of Use of Domestic Products

The performance of the use of domestic products includes, first, the ratio of the general procurement plan calculated using the calculations:

Second, the transaction value of the general procurement plan for domestic product providers and micro and small enterprises is calculated using a formula:

Third, the budget for goods and services and capital expenditure.

The data used to assess regional performance in the first and second categories comes from the Government Goods/Services Procurement Policy Institute, and in the third category, the data comes from the Ministry of Finance.

4. Regional Expenditure Acceleration Performance Category

This category is assessed based on data sourced from the Ministry of Finance in the form of the realization of first-semester regional expenditure and the local government expenditure budget which is calculated using a formula:

Determination of Incentive Recipients

After the assessment, the Ministry of Finance will determine the regions entitled to the fiscal incentives. Later, the number of regions that receive incentives will not be the same between provinces, regencies and cities.

For the provincial level, the government will select the 7 best regions, based on the final score in each category ranked 1 to 7.

Meanwhile, for the city level, the 21 best regions will be selected based on the assessment. Then, for district governments, the 97 best regions will be selected.

Incentive Distribution Scheme

Furthermore, the government will provide incentives to each selected region through two stages. Each stage will be disbursed at 50% of the incentive allocation ceiling.

The distribution of the first stage will be disbursed no earlier than September 2023. Then, the second stage is carried out after the Director General of Fiscal Balance of the Ministry of Finance receives a plan for the use of fiscal incentives and a report on the realization of the first stage of incentives for the category of public welfare in 2023 not more than 30 November 2023 at 17.00 WIB.

Then, for the incentives received, the Local Government is obliged to submit a realization report of the absorption of fiscal incentives in the Community Welfare category until the end of the 2023 fiscal year.

The report is signed by the Regional Head or regional financial management official, accompanied by a letter of appointment of the regional head, deputy regional head or regional financial manager. (ASP/ALF/KEN)