The Sustainable Madani Foundation summarizes several important events related to the economic and political conditions that occurred in the past week (May 25-May 31, 2021). Here are the excerpts:

1. Canada Grant Fund for Climate Finance

Canada in collaboration with UNEP will distribute a grant of 4.8 million Canadian dollars or around 568.78 billion Rupiah through the Tropical Landscapes Finance Facility  (TLFF) to control the climate crisis in Indonesia. In detail, the grant will be used, among other things, to increase banking access for projects that encourage green growth and the utilization of rural  livelihoods  . Canada itself in 2015 committed to channeling climate funding of 2.5 billion Canadian dollars to developing countries to implement adaptation and mitigation and increase the capacity to track the progress of their climate control. Indonesia is one of the countries that has felt the benefits of this funding, including through the Canadian Climate Fund for Private Sector in Asia, Global Climate Fund, Global Environment Facilities, Forest Carbon Partnership Facilities .

2. KPPU: Palm Oil Business Profits Not Reaching Farmers

The Business Competition Supervisory Commission (KPPU) stated that the lucrative palm oil business profits are not reaching smallholder farmers. KPPU Deputy Chairman Guntur Syahputra Saragih said this condition is evident in the fact that palm oil farmers are not prospering. Guntur's statement was echoed by Fachru Nofrian, an observer of development economics from UPN Veteran Jakarta. According to him, the palm oil industry is indeed absorbing more workers. Rather than being good news, he said this absorption is a sign that more plantation owners are becoming laborers.

Citing data from the Ministry of Agriculture, there was an increase in the palm oil industry workforce from 2011 to 2015. In 2011, for example, the number of palm oil workers was reported at 3.65 million, increasing to 3.7 million in 2012. In 2013, the figure grew rapidly to 5.18 million, and then again to 5.21 million in 2014. Then, in 2015, the number of palm oil plantation workers was reported to be 5.5 million.

Fachru also highlighted the increase in investment in related sectors, which was not in line with the downward trend in the exchange rate for smallholder plantation workers until 2019. According to Fachru, one of the main contributors to the decline in the exchange rate for oil palm farmers was the declining area of ​​planting. This left farmers with no bargaining power and vulnerable to losses.

Fachru's analysis shows that the net income of oil palm farmers in 1990 tended to decrease compared to 2013. He explained that, with an average production of 4,600 tons per household, the net income received by farmers in 1990 reached Rp 280,200 per household per month. Compared to current prices, he stated that in 2013, the net income of oil palm farmers was not much different, ranging from Rp 100,000 to Rp 200,000.

3. The UK is eyeing Indonesian palm oil waste as a renewable energy source.

The British government is eyeing palm oil mill effluent (POME) as a raw material to promote the use of renewable energy. This further strengthens Indonesia's position as a net exporter of raw materials to the country. Argent Energy CEO Erik Rietkerk plans to increase POME imports from Indonesia to around 250,000 tons by 2022, particularly as the quality of Indonesian POME is considered superior to that of other countries. In 2020, the UK imported US$67.9 million worth of Indonesian palm oil (HS Codes 1511 and 1513), a 10.2 percent increase compared to US$61.6 million in imports in 2019.

4. 51 KPK Employees to be Dismissed

A total of 51 KPK employees were declared to be dismissed. The decision was made after a meeting between KPK officials and the BKN. The 51 employees were part of the 75 KPK employees who were declared to have failed the TWK. Meanwhile, the other 24 KPK employees who did not pass will be re-trained or retake the national insight test (TWK). The dismissal measure was taken when the KPK still needed an additional 100 investigators in the prosecution team. KPK Deputy for Enforcement Karyoto said that the scheme to add 100 investigators in the KPK had been prepared for a long time. This also includes several needs in the investigation, inquiry, fugitive search team, and others. Karyoto also did not deny that he experienced difficulties if some of the 51 KPK employees were from the prosecution team.

The legal basis for the dismissal of the 51 KPK employees is Law No. 5 of 2014 concerning State Civil Apparatus (ASN). However, the KPK Law does not stipulate the TWK (Teaching Test) as a requirement for employee status transfer. Government Regulation No. 41 of 2020 also does not mandate it. Therefore, according to constitutional law expert Feri Amsari, personnel matters at the KPK have more specific regulations governing them, namely, lex specialis.

In the KPK Law 19/2019 and Government Regulation (PP) Number 41 of 2020, it is explained that there are only 5 stages of the transfer of the status of KPK employees to ASN. The five stages are listed in Article 69B of Law 19 of 2019 concerning the KPK and Article 4 of PP 41 of 2020. The first stage, the adjustment of current positions in the KPK to ASN positions in accordance with the provisions of the legislation. Second, identifying the type and number of current KPK employees. Third, mapping the suitability of qualifications and competencies as well as experience of KPK employees with the ASN positions to be filled. Fourth, carrying out the transfer of KPK employees as referred to in Article 2 to PNS or PPPK in accordance with the provisions of the legislation. Finally, determining the class of position in accordance with the provisions of the legislation. In addition, Fery also said that the dismissal was contrary to the Constitutional Court decision number 70/PUU-XVII/2019 which stated that the entire status transfer process must not be detrimental to the KPK.

5. VAT Rate Will Increase by 10 Percent

The government is preparing a major reform in the taxation sector. This measure is outlined in the Draft Law (RUU) on General Provisions and Tax Procedures (KUP). There are several major changes to taxation in this bill. One of them concerns the increase in value-added tax (VAT). The government currently sets the VAT rate at 10 percent. VAT is a tax imposed on domestic consumption by individual taxpayers, corporate entities, and the government. VAT is objective, non-cumulative, and is an indirect tax. Regarding this VAT increase, the government will conduct intensive discussions with the House of Representatives (DPR). All decisions will be adjusted by taking into account current economic conditions and situations.

The Director General of Taxes at the Ministry of Finance, Suryo Utomo, stated that fiscal space must be increased amid the Covid-19 pandemic. In difficult conditions, state spending needs increase, but state revenues also decline. One alternative being studied to increase fiscal space is the VAT rate. The VAT rate presents several issues that remain to be resolved. First, many goods and services are still subject to VAT. Second, the effectiveness of VAT collection in Indonesia is still only 60 percent of the total that should be collected. Third, the ratio of VAT revenue to GDP is only 3.62 percent.

Furthermore, the current VAT rate is 10 percent. Indonesia's VAT rate is among the lowest in the world. According to PwC's Tax Summary data, VAT rates in ASEAN countries tend to be low. Singapore imposes a 7 percent VAT rate, Thailand 7 percent, Laos and Vietnam 10 percent, and Cambodia 10 percent. Malaysia has a 10 percent VAT rate but a 6 percent service tax rate. Compared to countries like the Netherlands, whose VAT rate reaches 21 percent, it is clearly higher. France has 20 percent, Italy 22 percent, the UK 20 percent, Germany 16 percent, and Spain 21 percent.