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Redesigning Indonesian Forest Fiscal Policy to Support Forest Conservation

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Redesigning Indonesian Forest Fiscal Policy to Support Forest Conservation Forest Policy and Economics 61 (2015) 39–50 Contents lists available at ScienceDirect Forest Policy and Economics journal homepage: www.elsevier.com/locate/forpol Redesigning Indonesian forest fiscal policy to support forest conservation Fitri Nurfatriani a,⁎,DudungDarusmanb, Dodik Ridho Nurrochmat b, Ahmad Erani Yustika c, Muhammad Zahrul Muttaqin a a Research and Development Centre for Forest Social Economic Policy and Climate Change, Indonesia b Department of Forest Management, Faculty of Forestry, Bogor Agricultural University, Indonesia c Department of Development Economy, Faculty of Economy and Business, Brawijaya University Malang, Indonesia article info abstract Article history: The formulation of fiscal policy in the forestry sector was designed as a green incentive for local governments to Received 4 September 2014 conserve forest area in Indonesia. However, evidence demonstrates an increasing rate of deforestation occurred Received in revised form 11 July 2015 during the implementation of fiscal policy reforms. Thus, problems persist in the implementation of fiscal policies Accepted 21 July 2015 in the forestry sector. This study evaluates the gap between the rule and the implementation of forest fiscal pol- Available online 28 August 2015 icy, focusing on regulatory, economic, administrative, and informational instruments. There are four main find- ings of this study. First, there are several inappropriate and even conflicting regulations concerning local Keywords: Fiscal framework government authorities and forest conservation; second, the lack of coordination among agencies is one of the Forest conservation most important factors causing sub-optimal collection of “non-tax state revenues” from the forestry sector; Forest revenue sharing third, forest fiscal policies in Indonesia mostly focus on collecting financial benefits from timber rather than Gap analysis preserving ecosystem functions, and; fourth, there is a weak management information system concerning forest Green fiscal policy fiscal policy. To address the gaps identified in this study, the implementation of green fiscal policy in the forestry sector must provide a comprehensive regulatory framework and improve the capacity of human resources. © 2015 Elsevier B.V. All rights reserved. 1. Introduction providing forest resources (Law 33/2004). According to Mumbunan (2012) there are three principles that guide the transfer of revenue Improper fiscal policy is one of many causes that can lead to the sharing: (1) The derivation principle determines the revenue that is dis- over-exploitation of forest resources. When timber production is em- tributed to timber producing districts; (2) The realization principle de- phasized over conservation, depletion of forest resources and environ- termines the revenue that is channeled to the districts based on the mental degradation can result (Marwa et al., 2010; Nurrochmat et al., realization of non-tax revenue in the forestry sector; (3) The equal 2010; Nurrochmat, 2005b). Consequently, ecosystem services are not share principle determines shared revenue is also distributed equally often considered in policy decisions. When ecosystem services remain to non-producing districts, but within the producing district's province. inadequately quantified and unmarketed, the total economic value of It is also important to note that forest fiscal policy does not incorporate a forest area can be used as a guide for decision-making (Salles, 2011). punitive elements. A producing district is not sanctioned for resource However, the total economic value of a forest, which necessarily degradation; districts obtain shared revenue only from exploitating nat- includes economic services, often remains uncaptured within fiscal ural resources. Thus, current Indonesian IFTs remain based on the policies. To generate income from potential economic values of forest amount of timber and non-timber production, rewarding exploitation ecosystem services, these services need to be monetized and, if neces- and failing to punish deforestation and forest degradation. sary, regulated (Nurrochmat et al., 2010). To address the unsustainable nature of Indonesian forest-based fis- Current forest fiscal policies in Indonesia are implemented through cal policy, several studies suggest that green fiscal policy can support intergovernmental fiscal transfer (IFT). However, IFT implementation conservation-focused programs in the forestry sector (Chaturvedi in Indonesia remains problematic. IFTs are based exclusively on timber et al., 2014; Irawan et al., 2013, 2014; Kollner et al., 2002; Kumar and production and do not consider total economic value. IFTs are applied Managi, 2009; Ring et al., 2010; Ring, 2008; Santos et al., 2012; in the forestry sector, particularly in the form of revenue sharing be- Scholtens, 2001). Other studies have demonstrated the importance of tween central and local government. The transfer is based only on the green fiscal policy design within the forestry sector for ameliorating level of production of timber, rewarding the local government for ecosystem degradation, specifically through environmental or energy taxation (Bossier and Majocchi, 1996; Bossier and Broechet, 1995; ⁎ Corresponding author. Hamelink, 1998; Kunce and Shogren, 2008; Laroui and Leeuwen, E-mail address: [email protected] (F. Nurfatriani). 1996, the UK Green Fiscal Commission, 2009; Vollebergh, 2008). This http://dx.doi.org/10.1016/j.forpol.2015.07.006 1389-9341/© 2015 Elsevier B.V. All rights reserved. 40 F. Nurfatriani et al. / Forest Policy and Economics 61 (2015) 39–50 study extends scholarship on environmentally conscious fiscal policy by coordination mechanism of negotiations between stakeholders. Regula- analyzing the gaps between the conceptual basis of fiscal regulations in tory instruments apply “command-and-control” principles. Finally, eco- the Indonesian forestry sector and its implementation. nomic instruments use market-based coordination mechanism of prices Specifically, this study evaluates the implication of Penerimaan to influence actors' behavior. Further, he argues that the choice of a pol- Negara Bukan Pajak (PNBP)or“non-tax state revenue” in the forestry icy instrument is affected by institutions, problem structure, and dis- sector. This study also examines the levies and mechanisms of “shared courses on instrumental alternative (Boecher, 2012). Wang and Chang revenue” for fiscal balance transfers from the central government to re- identify three policy instruments for low carbon development: (1) law gions. This article focuses on “shared revenues”, since they are often and regulations, (2) industry standard and (3) finance and taxation. In considered one of the drivers of deforestation and forest degradation. all three of these studies, regulations and economic instruments are es- A series of studies indicate that there is a strong relation between sential apparatuses for policy implementation, labeled “policy instru- “shared revenue” and deforestation rate (Article 33 Indonesia, 2014; ments” (Boecher and Toeller, 2003; Krott, 2005;andWang and Chang, Barr et al., 2006, 2010; Greenomics Indonesia and Indonesian Corrup- 2014). tion Watch, 2004; Irawan et al., 2013, 2014; Mumbunan and Wahyudi, Analyzing gaps between the formulation and implementation of 2014; Oka, 2004; Prayitno et al., 2013; Subarudi and Dwiprabowo, current forest fiscal policy elucidates the necessary conditions for 2007). implementing green fiscal policy. To identify gaps, we analyze the com- While this analysis proceeds at the national level, it uses East patibility of policies and regulations with their appropriate implemen- Tanjung Jabung District, Jambi Province as a regional sample site to sub- tation (Nurrochmat et al., 2014; Sahide et al., 2015). To analyze policy stantiate and illustrate claims. This district contains forests with high- gaps, we provide a definition for each policy instrument and how it is value ecosystem services, including Berbak National Park, production currently being implemented (Table 1). Fig. 1 presents the analytical forests, peat-swamp forest, and the East Coast mangrove nature reserve. framework for this study. Thus, within East Tanjung Jabung District, there are options to utilize timber, non-timber forest products, and forest ecosystem services 3. Fiscal policies in forestry sector and their implication in (BPPHP Wilayah IV Jambi, 2008). With high potential for carbon seques- forest conservation tration, Berbak National Park has been used as a demonstration activity for REDD+ (Reducing Emissions from Deforestation and Forest Degra- Some studies suggest that one of the underlying causes of forest dation) planning, and as a model for implementing debt for nature degradation in Indonesia is the implementation of decentralization swaps between Indonesia and the U.S. through “Tropical Forest Conser- policymarkedbytheLocalGovernmentLaw1 and Law of the Fiscal vation Action for Sumatra” (TFCA-Sumatra). Hence, Tanjung Jabung Balance between Central and Local Governments2 (Barr et al., Timur District provides an important model to illustrate how payments 2006; Ekawati et al., 2012; Nurrochmat, 2005b; Wisuandini, 2009). for ecosystem services might support the implementation of green fiscal Based on those laws, some authority previously held by the central policy. government was transferred to local governments. The transfer This article is divided into six sections. The first section introduces was intended to give local government greater ability to utilize the problem
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