Factors Affecting the Financial Independence of District and City Governments in Lampung Province
Total Page:16
File Type:pdf, Size:1020Kb
Published by : International Journal of Engineering Research & Technology (IJERT) http://www.ijert.org ISSN: 2278-0181 Vol. 9 Issue 07, July-2020 Factors Affecting the Financial Independence of District and City Governments in Lampung Province Ari Ben Lahan Lampung University Abstract:- This study aims to examine the effect of business Regional Finance is the overall structure, institutional set, diversification and disclosure of derivative transactions on tax and budgeting policy that covers regional revenue and avoidance activities. The study was conducted on expenditure. Sources of regional revenue consist of the manufacturing companies listing on the Indonesia Stock excess of last year's budget calculation, regional own-source Exchange from 2014-2018, the research sample of 92 revenue (PAD), balance funds, loans, and other legitimate companies. The method of data analysis in this study uses multiple linear regression. The results of the study prove that regional income. Regional financial independence is business diversification measured using the Hirschman- expected to be realized with regional autonomy because of Herfindahl index does not affect tax avoidance activities. While course, the central government realizes that the most aware the derivative transaction disclosure variable as measured by of the condition of the region is the local government itself, the disclosure score affects the tax avoidance activity. both in terms of existing problems to the source of revenue that can be explored by the local government. Regional Keywords: Financial Independence, Local Government financial independence shows the ability of local governments to finance their government activities, I. INTRODUCTION development, and services to the people who have paid taxes and levies as a source of income needed by the region Law Number 23 the Year 2014 concerning Regional (Halim, 2016). Government, Law Number 33 the Year 2004 concerning The ratio of the level of regional independence is the amount Financial Balance between Central Government and of regional original income obtained by each district/city Regional Government and the previous law on regional government. The greater the local revenue compared to the government has provided changes in government from assistance provided by the central government, the city centralization becomes decentralized. Based on article 1 government has a high level of local financial independence. paragraph (8) of Law no. 23 of 2014 decentralization is the A region that has a high level of independence means that it transfer of government affairs by the central government to can finance the implementation of regional government by autonomous regions based on the principle of autonomy. managing the potential of the region as a source of income. According to Law No. 33 of 2004, concerning Fiscal Sources of funding for the implementation of government Balance between Regional Government and the Central activities and activities means obtained independently by Government in the Implementation of Regional Autonomy utilizing the resources owned by the area. requires the regulation, distribution, and utilization of The financial independence of local governments can be equitable national resources and financial balance between influenced by several factors, as revealed by several the central and regional governments. researchers in their research. One of them is audit opinion, The authority to manage the potential of each region to the fewer audit findings the better the opinion given. BPK finance regional affairs is exercised in the Regional Original audit opinion can be a benchmark to assess the Revenue (PAD) container. Based on Law Number 33 of accountability of a local government. Research by 2004 concerning Financial Balance Between Central and Masdiantini and Erawati (2016) shows that the size of local Regional Article 1 number 18 that "regional own-source government and BPK audit opinions have a significant revenue, hereinafter referred to as PAD, is the income that positive effect on the financial performance of district/city the region has collected based on regional regulations governments as measured using financial independence. following statutory regulations, where the source of regional This study focuses on district/city governments in Lampung income according to Article 157 of Law Number 32 the Year Province, arguing that districts/cities in Lampung Province 2004 and Law Number 12 the Year 2008 Regarding have not fully succeeded in achieving the expected level of Regional Government the source of Regional Original financial independence. The Regency / City Government in Revenue consists of regional tax revenue, regional levies, Lampung Province is one of the regional governments that regional company results and other regional wealth still receives balance funds from the central government in a management results that are separated and other valid Local much higher portion compared to the original revenue of the Original Revenue (PAD). region, this can be seen in the following table: IJERTV9IS070125 www.ijert.org 847 (This work is licensed under a Creative Commons Attribution 4.0 International License.) Published by : International Journal of Engineering Research & Technology (IJERT) http://www.ijert.org ISSN: 2278-0181 Vol. 9 Issue 07, July-2020 Table 1.1 Ratio of Independence of Regency / City Governments as a whole Lampung Province, 2019 District / State Level Independence Criteria Bandar Lampung 29.44% Average Metro City 17.31% Less Way Kanan 3.70% Very Less Lampung Barat 7.68% Very Less Tanggamus 3.59 % Very Poor Tulang Bawang Regency 3.53% Very Poor Tulang Bawang Barat Regency 10.79% Less Mesuji Regency 3.03% Very Poor Pringsewu Regency 6.15% Very Poor Pesawaran Regency 3.78% Very Poor North Lampung Regency 6, 10% Very Poor Central Lampung Regency 6.26% Very Poor East Lampung Regency 10.27% Poor South Lampung Regency 9.93% Very Poor West Pesisir Regency 5.28% Very Poor Average 6.96% Very Poor Source: data processed from the Central Statistics Agency, 2018 In Table 1.1 it can be seen that of the fifteen districts/cities contract, which arises when one or more people as the owner in Lampung Province, Bandar Lampung City has the highest (principal) to employ someone else (agent) to provide a independence ratio of 29.44 percent while Mesuji Regency service to the principal and then delegate the authority to has the lowest ratio of independence, 3.03. Besides, the decide on the agent. regency/city government in Lampung Province shows that Mardiasmo (2009) explains that accountability in the the average portion of PAD to total regency/city revenue in context of the public sector is the obligation of the trustee Lampung province only reaches 6.96% and is categorized as (government) to provide responsibility, present, report and very less independent. disclose all activities and activities that are its responsibility Based on the background described above, the formulation to the trusted provider (community) who has the right to hold of the problem in this study is whether the audit opinion, that responsibility. This statement implies that in the prosperity, liquidity, size, investment, and age of the management of local government there is an agency regional government affect the financial independence of the relationship (agency theory) between the community as the regency/city local government in Lampung Province? principal and the local government as an agent. Based on the problem that the author pointed out above, it Agency theory is used as a theoretical basis in this study to can be explained the purpose of this study is: explain the existence of conflicts of interest between 1. To empirically prove the influence of audit opinion regional governments as agents and communities as on the financial independence of district/city principals related to the use of the Regional Budget (APBD) governments in Lampung Province. which will describe the financial performance of local 2. To prove empirically the influence of regional governments. prosperity on the financial independence of district/city governments in Lampung Province. The theory of legitimacy (Legitimacy Theory) 3. To prove empirically the effect of liquidity on the Legitimacy can be considered as the perception or financial independence of regency/city assumption that the actions taken by an entity are an action governments in Lampung Province. that is desirable, appropriate, or following the system of 4. To prove empirically the influence of the size of the norms, values, beliefs, and definitions developed social regional government (size), on the financial (Wiranata et al,2014). Legitimacy is considered important independence of the district/city government in for companies because people's legitimacy to companies is Lampung Province. a strategic factor for the company's future development. 5. To empirically prove the effect of investment on The rationale for this theory is that the organization or the financial independence of regency/city company will continue to exist if the community realizes that governments in Lampung Province. the organization operates for a value system commensurate 6. To prove empirically the influence of the age of with the value system itself. Legitimacy theory encourages local government on the financial independence of companies to ensure that their activities and performance are regency/city local governments in Lampung acceptable to society. However, inevitably, there will always Province. be differences