Raising Non-tax Revenue by Simplifying and Digitalising State-assets Commercialisation Approval Processes

By: Muhammad Meirizky Ikhsan, S.E., M.P.A (KPKNL Palembang)

Government has announced series of economic recovery packaged named Pemulihan Ekonomi Nasional (PEN) in the mid 2020 to reduce the impact while stimulating the rebound of the downward economic situation due to the COVID-19 outbreak. This program mainly aims to address those who affected the most from the pandemic which are informal sectors and micro to medium businesses. Thus, PEN is a policy decision which is really vital in current condition, however in the same time it is widening the budget deficits.

With the likely unachieved trends of tax revenue and the possibly unmet non-tax revenue realisation, the deficits may limit government’s budget for the upcoming years while stretching the needs of government to pay the instalment of its debts.  These circumstances urge government to seek alternative sources of fund. Hence, non-tax revenue from assets utilisation by public organisations might be an option. Despite some challenges might arise to boost the flying score, mainly the downturn of economic situation, yet recent relaxation policy might come in handy to address the issues.

The urgency of alternative source of state revenue

Law Number 9 year 2020 on state budget on 2021 confidently predicts that state’s revenue will still achieve a positive trend. Compared to the 2020’s outlook revenue, the 2021’s is 4.5% higher. Meanwhile, the October 2020’s achievement which was 75.1% which left only another three months for government to mark another IDR 224 trillion for surpassing 100% target in the end of year. Even though this year revenues target might be achieved, it could not cover the expenses with the approximate stated deficit 6.34 % of GDP. This figure will be higher if the revenue realisation does not meet the trajectory.

Therefore, central and regional governments need to carefully execute the planned program related to PEN. In other words, on the expenses side, realised programs must strictly aim for maintaining public health and assisting those who are affected the most from the pandemic. Only by this way, government might generate optimized policy results with every penny it stakes.

On the revenue sides, government also needs to look for any possible opportunities to cover the slowing tax collection performance.  Un-used or sub-optimal state fixed-assets commercialization is one alternative that can be reengineered to boost the non-tax revenue realisation performance. Moreover, with the launched of Ministry of Finance’s Regulation Number 115/PMK.06/2020, the assets also can be used as part of the PEN as it applies rent discount up to 99% from the fair rent value or extended rent period for renters (without paying more) who have made full rent payment.

Optimizing state assets commercialization

The entrepreneurial government theory assumes that government co-exists in the markets by seeking opportunities, being innovative, and taking risks of uncertainty, to create value added. So, how does this term relate to state assets utilisation or commercialisation? It is because the involvement of public entities in the property markets by providing access of state building and land for private sector activities. Then comes up the next question: is it wrong? Definitely not, as government creates alternative source of revenue while at the same time optimizing idle or sub-optimal assets. Therefore, as one of the ‘player’ in the property market, it needs to innovate and responsive to create even more value added.

As state assets rent is still considered the most used assets commercialization services of Directorate General of State Assets Management (DGSAM), it needs to elaborate the technical guidance to both enhancing the service coverage and ensuring approval process simplification. Thus, the newly introduced rent discount regulation is variously defined among DGSAM’s vertical units, meanwhile, it also seems that they have not actively encouraged their counterpart public organisations to enjoy the facilities. If these situations exist longer, the objective of state assets rent relaxation policy might not be hit accurately.

Policy response of recent situation: Digitalised request-approval processes and simplified procedures

During the period of January – August 2020, non-tax revenue realised from state assets utilisations was IDR 289 billion which is far from 2019’s achievement of IDR 522 billion. The main hindrance of this performance was the restrictive large-scale social restrictions regulated by the local authorities due to the policy response of COVID-19 outbreak. Therefore, some of valuation activities were not able to be conducted and the Work From Home policies also limited public organisations to directly manage the state assets utilisation requests to DGSAM. Consequently, it is prominent for DGSAM to specifically address the rent rate producing processes as well as providing electronic-based-automation state-assets utilisation systems.

In the rent approval procedure, valuators visitation is one critical step to produce the fair rent value. Moreover, this value is assessed by the DGSAM’s analysts whether it is eligible for discount or needs to be adjusted according to the applied unit period. Although this phase holds significant role in the entire process, time taken from field survey until the valuators declare the value is considered too long.

Moreover, since the outbreak, valuators tend to take valuation assignments selectively due to health risks mitigation. Actually, some of the asset types and rent allotments are not really needed to be surveyed, for instance ATM, bank branch offices, canteen, telecommunication tower, or other similar kinds of allotments which are typical in nature and not so much variety aspects for making adjustment.  Similarly, the approval requests on rent period extension are another type of assets utilisation that is supposed to be waived from being visited by the valuators.

The abolishment of field survey obligation on certain types of state assets rent request may shorten required time to grant the approvals, reallocate resources to others assignments, and creating an image of quality and efficient public services. Those benefits working altogether will shape state assets utilisation be more attractive to potential renters that in the end will improve non-tax revenue.

Beside policy simplification in the fair value creation, the digital automation system is another significant way that might alter the contraction of non-tax revenue of assets utilisations, especially during the pandemic. On DGSAM’s side, procedure simplifications with supportive digital formulation system will double the performance of valuators and fair value outputs. Meanwhile, on the asset users’ side, the automation requests will ease the administrative requirements, which sometimes make them feel reluctant to send the approval request to DGSAM’s offices. In addition, the automation system will assist DGSAM whether in controlling the follow-up process after approval is granted or ensuring that there is no rent extension that is not covered by official approval from DGSAM. 

Policy relaxation as part of PEN

Since government has allowed rigorous discount percentage due to COVID-19, the discounted value should also be considered as part of PEN itself. For instance, in normal situation, price for renting a 10 meter square land space which is allotted for culinary business or canteen is IDR 5 million per year. However, under recent regulation, the renter might pay as low as IDR 100.000 (assumes that 99% discount applies).  In that case, the uncollected amount of rent fee can be accounted as part of government ‘cost’ to aid the culinary business during the economic downturn.

From PEN budget with amount of IDR 695 trillion, IDR 120.61 trillion of it is related to tax incentive, including tax subsidy, tax discount, or tax waive. This means that from that amount, not all of it is in the form of cash transfer but reserve made for compensating the absent of full tax payments.  Thus, opportunity cost of uncollected non-tax revenue need to be accounted as other role of DGSAM in PEN, apart from its authority on state auction, state assets management, state-owned enterprises, and separated state assets.  If it is considered as explicit PEN budget allocation, consequently, it could stimulate DGSAM to aggressively encouraging business to survive COVID-19’s effects by leasing relatively lower rent price of state assets compared common properties which are available in market.

To sum up, it is evident that the COVID-19 plays as challenge for DGSAM to formulate policy adaptation of sudden, complex, and unprecedented event. Thus, DGSAM has shown responsive stance by issuing set of policies to address issues during the pandemic, especially the notable Minister of Finance Regulation Number 115/PMK.06/2020. However, acting as a fresh policy, it is natural that the implementation stages meet some issues and variation in receipting the context. Therefore, DGSAM needs to continuously assist its vertical office in accommodating the benefits and facilities to the affected stakeholders.

Moreover, this relaxation policy may robustly create more value added if accompanied by some other policy adaptation such as simplified process and e-based services in both valuation and approval process. It is critical under entrepreneurial government which operates based on innovation acts and risk management of potential loss of consumers due to unattractive services.