President signs regulation on funding for new capital construction

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– President Joko Widodo has signed Government Regulation (PP) No 17 of 2022 on Funding and Budget Management for the Preparations, Development, and Relocation of Capital City and the Implementation of Special Administration of Nusantara Capital City (IKN).

“The funding scheme for Nusantara capital city can be derived from the State Budget and other legitimate sources, including the use of State Property (BMN) and/or the use of Assets in Concession (ADP) of Nusantara Capital, the use of the Government and Business Entity Cooperation scheme, and the participation of other parties, including the assignment of business entities whose capital is partly or wholly owned by the state, strengthening the role of state-owned legal entities, and creative financing,” according to the new regulation, which was posted on the State Secretariat Ministry’s website here on Wednesday.

The regulation was signed by President Widodo on April 18, 2022.

In addition, funding can come from other legal sources, in accordance with the provisions of the legislation—including funds originating from private contributions, creative financing, and the IKN Special Tax and/or IKN Special Fees stipulated in the IKN Authority’s regulations—after it is approved by the Indonesian House of Representatives (DPR RI).

As per Article 4 of the regulation, sources of funding for IKN construction could include state securities such as State Sharia Securities (SBSN) and Government Securities, private contributions, creative financing, and special IKN tax and levy, and would require DPR approval.

The implementation of the IKN funding scheme sourced from the APBN (state budget) in the form of SUN is being carried out in accordance with the provisions of the legislation.

The implementation of creative financing will be determined by a minister after coordinating with the relevant ministries.

Furthermore, the IKN Authority can also issue bonds and/or government sukuk for the IKN.

“Issuance of Special Regional Government Bonds and/or sukuk IKN is carried out with the approval of minister and based on the provisions of the laws and regulations,” the regulation states.

Then, article 43 regulates the types of IKN Special Taxes that can be collected by the IKN Authority.

The IKN construction can be funded through taxes, including the vehicle tax, duty on transfer of motor vehicle names, heavy equipment tax, motor vehicle fuel tax, surface water tax, cigarette tax, rural and urban land and building tax, fee for the acquisition of rights on land and buildings, advertisement tax, groundwater tax, tax on non-metal minerals and rocks, swallow’s nest tax, and certain goods and services taxes, such as those applicable on food and/or beverages, electric power, hospitality services, parking services, and arts and entertainment services.

The period of preparation, development, and transfer of IKN, or until the completion of Phase 3 of IKN development, which has been made a national priority program, is a minimum of 10 years as per the government’s 2022 work plan.

IKN development is expected to enter Phase 3 in 2030–2034. The government has estimated that the total budget requirement for IKN will reach Rp466 trillion, of which, Rp89.4 trillion will be met through the State Budget, Rp253.4 trillion through government and business entity cooperation (KPBU), and Rp123.2 trillion through the private sector.

Source: Antara News