Resolving regulatory barrier to boost investment in telecommunication industry

The Association of Indonesian Cellular Telecommunications (ATSI) has raised many complaints about the increase in the number of local regulations considered to be unhelpful – even a hindrance – to its campaign for a better investment climate to the industry.

Complaints were mainly raised around the new economic burden being imposed on operators. This includes the charging by local administrations of Base Transceiver Station (BTS) tower levies and other taxes. There are, in fact, other areas where – according to some operators – local governments seek to act as telecommunication regulators by issuing licenses (or denying licenses, as the case may be) for cellular frequency usage.

This reflects an increasing divide between telecommunication investors and local governments. The concern of the local administrations is to make the most use of the autonomy right on their territories to generate optimal revenues. Their position is that the investors should naturally bear the most of the various tax burdens.

This standoff may in the long run harm investment as it depresses telecom operators’ interest – and when investment is harmed, revenues for the regional autonomy bodies will also decline. The public stands to lose the most as its rights to telecommunication services cannot be met.

ATSI says there are at least nine regulations that are causing ‘discomfort’ – to say the least – among the investors. This writer believes this is caused by the failure of the Indonesian Telecommunications Regulatory Body as well the Director General of Post and Telecommunication to act to stem potential problems.

This resembles the way that the local administrations treated the rented room or house businesses around office or campus areas. Initially this was deemed individual businesses not subject to taxation, but it then grew into an industry and the local governments began imposing taxes. [Needless to say, a room-for-rent business is certainly a far cry from the complexity and magnitude of the investment sizes of telecommunication industry.]

This writer believes that the regulatory barriers facing the telecommunications industry began in 2000, just one year after the enactment of the Law 22/1999 on regional autonomy. Unfortunately the Director General of Post and Telecommunication/ DGPT failed to act quickly enough, so that the industry now has to contend with regulations that are hampering investments involving nine local governments.

It is true the Regulatory Agency has cooperated with the Director General Post and Telecommunications and the Director General of Regional Autonomy at Ministry of the Interior, in its attempt to negotiate with the local governments for the revocation of the regulations in question. We have yet to hear the results of the negotiation.

Those problematic regulations are:

First, restrictions on the construction of towers and on the issuing of IMB licenses. Second, the imposition of taxes on installed equipments and on the sale of prepaid phone credit. Third, the local government’s injunction on licenses for frequency usage.

If local governments set an eye on the prospect of telecommunications growth as further potential revenue sources, which lead them to impose new taxations, then the operators and the investors in the field can only see them as disincentives to their investment plans.

This should not be allowed to drag on because the telecommunication sector has not only withstood the economic turbulence of the past decade, but in fact thriven and is becoming the staunchest pillar for the country’s economic growth.

It must be said here that had only telecommunication regulatory bodies acted swiftly, they would have stemmed the problems in the bud because despite the autonomy that they enjoy, the local governments cannot just create and slap regulations arbitrarily.

Both Law No. 22/1999 and Law No. 32/2004 on local administrations recognize two types of local legislation, namely the Local Regulations and Governors Regulations. (Law 32/2004) or the Governors/Mayor/Regent Head Decree (Law 22/1999). The two are directives of higher regulations.

A local government’s regulation must not contradict higher rank regulations. Article 136 paragraph 4 of Law 32/2004 defines the public interest as, among others, policies that result in the disruption of public services. Article 145 of Law No. 32/2004 stipulates that a local legislation that is contrary to the public interest and higher ranking regulations can be canceled through a Presidential Decree.

The Interior Ministry controls and supervises regional regulations and regional government heads’ decisions – as outlined in Article 222 of Law 32/2004. This clarifies that there is a mechanism in place to resolve problematic legislations, which also allows the local governments to present their objections through the Supreme Court.

Hence, the first to be established in the negotiations involving telecom regulators, the director general of regional autonomy and ATSI are the criteria for a regulation to be considered problematic; namely that it runs against the public interests, and that it contradicts a higher ranking regulation. When this is established then by law the attempts to repeal the regulations can be forwarded to the President through the interior ministry.

Further, the government should be transparent in the management of taxations, license fees, service fees, etc. that it has been imposing on telecom operators. We really must take lesson from the euphoria surrounding the early days of the regional autonomy law which had caused a frenzy in regions so much so that East Javanese fishermen were prevented from fishing in the waters of the neighboring province of Bali

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© 2018. Maulana and Partners | Indonesian Law Firm