Definition of APBD: Function, Structure, Legal Basis and Mechanism of Preparation

What is APBD? Definition of APBD – Regional Revenue and Expenditure Budget (APBD) is the annual financial plan of regional governments in Indonesia which is approved by the Regional People’s Representative Council. APBD is stipulated by Regional Regulation. The APBD budget year covers a period of one year, starting from January 1 to December 31. See a more detailed explanation of the APBD, as follows:

Definition of APBD

The Regional Revenue and Expenditure Budget (APBD), is the annual financial plan of regional governments in Indonesia which is approved by the Regional People’s Representative Council. APBD is stipulated by Regional Regulation. The APBD budget year covers a period of one year, starting from January 1 to December 31.

The APBD consists of the Revenue Budget, (Regional Own Revenue (PAD), which includes Regional Taxes, Regional Levies, Regional Wealth Management Results, and other Revenues), Balancing Funds Part, which includes Revenue Sharing Funds, General Allocation Funds (DAU), and Special Allocation Funds and other legitimate incomes such as Grants, Emergency Funds, Tax Revenue Sharing Funds from Provinces and other Regional Governments, Adjustment Funds and Special Autonomy, Financial Assistance from Provinces or Other Regional Governments and Other Income.

Expenditure Budget, which is used for the purposes of carrying out government tasks in the region. Financing, namely any receipts that need to be repaid or expenditures that will be received back, both in the relevant fiscal year and in subsequent fiscal years.

Understanding APBD According to Experts

Achmad Fauzi – According to Achmad Fauzi, APBD is a local government program that will be implemented in the next year, which is manifested in one form of money.

1. Alteng Syafruddin

According to Alteng Syafruddin, APBD is a work plan or work program of the local government for a certain work year, which contains a plan of income and expenditure plans for that work year.

2. RA Chalit

According to RA Chalit, APBD is a concrete form of a comprehensive regional financial work plan that links local government revenues and expenditures expressed in the form of money, to achieve the planned goals within a certain period of time in one fiscal year.

3. M. Suparmoko

According to M. Suparmoko, APBD is a budget that contains a list of detailed statements regarding the type and amount of revenue, the type and amount of state expenditure expected within a certain year.

Budget function

According to Ateng Syafruddin, the function and position of the APBD are: As a basis for the policy of running finances which will be carried out by the regional government for a certain period, namely one fiscal year. As the granting of power from the legislature, namely the DPRD to the regional head as the chief executive to make expenditures in the context of running the wheels of regional government.

As a determination of authority to regional heads to carry out regional development and services to the community. As material for supervision carried out by the party entitled to carry out supervision can be better. In the Minister of Home Affairs Regulation No. 13 of 2006 states that the APBD has several functions, including the following:

Authorization Function – The regional budget is the basis for implementing regional revenues and expenditures in the year concerned
Planning Function – The regional budget becomes a guideline for management in planning an activity in the year concerned.
Oversight Function – The regional budget becomes a guideline to be able to assess whether the activities or activities of implementing the regional government are in accordance with the stipulated provisions
Allocation Function – The regional budget must be directed to be able to create jobs or also reduce unemployment and waste of resources, and also increase the efficiency & effectiveness of the economy.
Distribution Function – The regional budget must pay attention to a sense of fairness and decency.
Stabilization Function – The regional budget is a tool to be able to maintain and strive for a regional economic fundamental balance.

APBD Legal Basis

Basically the purpose of preparing the APBD is the same as the purpose of preparing the APBN. The APBD is prepared as a guideline for revenue and expenditure for state administrators in the regions in the context of implementing regional autonomy and for increasing people’s prosperity. With the APBD, waste, fraud, and errors can be avoided. The legal basis for administering regional finance and preparing the APBD is as follows, Sinaumed’s:

UU no. 32 of 2003 concerning Regional Government.
UU no. 33 of 2003 concerning Financial Balance between Central and Regional Governments.
PP No. 105 of 2000 concerning Regional Financial Management and Accountability.
Decree of the Minister of Home Affairs No. 29 of 2002 concerning Guidelines for Management, Regional Financial Accountability and Procedures for Supervision, Preparation and Calculation of APBD.

APBD Preparation Procedure

The stages of the budget preparation process are in accordance with Law no. 25 of 2004 concerning the national development planning system, starting from the process of preparing the Regional RPJP which contains the vision, mission and direction of regional development and is stipulated in a Regional Regulation. To better understand the procedure for preparing the APBD, Sinaumed’s can read the Guidelines for Preparing the APBD for the Regional Revenue and Expenditure Budget.

After the Regional RPJP has been established, the next task is for the Regional Government to determine the description and elaboration regarding the vision, mission and program of the regional head by taking into account the Regional RPJP and the National RPJM by including matters regarding the direction of general regional policies, programs and SKPD activities as outlined in the Strategic Plan with reference indicative ceiling framework.

The Regional RPJM is stipulated by Regional Regulation no later than 3 (three) months after the regional head is appointed based on Law no. 25 of 2004 article 19 paragraph (3). After that, it is continued with the determination of the RKPD which is determined annually based on the references of the RPJMD, Strategic Plan, Renja and paying attention to the RKP with Regional Head Regulations as the basis for preparing the APBD.

The planning process from the Regional RPJP, Regional RPJM, to the Regional RKP is in accordance with Law no. 25 of 2005 in BAPPEDA.

Regional Budget Forming Components

The components that make up the APBD above consist of 4 parts, namely a summary of income, spending, surplus/deficit and financing.

1. Income

This section looks at changes in the various components of income. For local governments in Indonesia, the main revenue comes from three sources: Local Own Revenue (PAD) through taxes and transfer fees from the center, and other income. Considering that the average source of local government revenue is dominated by balance funds, which is around 80-90%, the local government’s source of income is in a dependent condition.

2. Shopping

This section shows the development of total spending in a period of 3 (three) years. In addition, it will also show changes in the type of spending so that it can be seen if one component changes relative to other components.

For regional governments in Indonesia, the classification of spending economically is divided into 10 (ten) types, namely: Personnel Expenditures Goods and Services Expenditures Capital Expenditures Interest Expenditures Subsidy Expenditures Grant Expenditures Social Assistance Expenditures Profit Sharing Expenditure to Prov/District/City and Pemdes Assistance Expenditures Finance to Prov/District/City and Pemdes Unexpected Expenditures.

Sinaumed’s can also find a deeper understanding of this in the Permendagri book Guidelines for Giving Grants & Social Assistance Sourced from the APBD.

3. Surplus or Deficit

This section shows the actual income, spending, and surplus/deficit in the 3 (three) year period. Basically, from this section you can see “surplus/deficit” nationally. However, unlike the private sector, large surpluses are not to be expected as this could indicate that the local government is not providing optimal public services in some respects.

4. Financing

This post describes regional government financial transactions that are intended to cover the difference between Regional Revenue and Expenditure, if the Revenue is smaller then a deficit occurs and will be covered by financing receipts, and vice versa.

APBD sources

1. Retribution

Considered as an additional source of revenue, its main objective is to increase efficiency by providing information on request to public service providers, and ensure that what is provided by public service providers is at least at the additional cost (Marginal Cost) to the community. There are three types of fees, including:

Certain Licensing Retribution (Service Fees) such as issuance of licenses (marriage, business, motorized vehicles) and various fees applied by local governments to improve services. The imposition of fees or tariffs on society for something required by law is not always rational.
Public Service Charges (Public Prices) are local government revenues from the sale of private goods and services. All sales of services provided in the area for personally identifiable public benefit fees to provide rates for entertainment or recreational facilities. These costs should be set at the level of private competition, without taxes, and subsidies, which is the most efficient means of achieving public policy objectives, and it would be preferable if subsidized taxes were calculated separately.
Business Service Retribution (Specific Benefit Charges) in theory, is a way to benefit from contrasting taxpayers, such as the Fuel Tax or the Land and Building Tax.

2. Regional Revenue

Local taxes can be divided into 2, namely provincial taxes and regency/city taxes. For example

Motor vehicle tax, motor vehicle fuel tax, hotel tax, restaurant tax, entertainment tax, and others,
Regional fees, for example fees for health services, cleaning, and others.
The results of separated regional wealth management, for example dividends and regional equity participation in third parties, Other legal regional revenues, such as demand deposits, interest income, commissions, deductions,
Balancing funds, which consist of profit-sharing funds, general allocation funds, special allocation funds and other income such as grants and emergency fund income.

APBD independence is closely related to PAD independence. This is because the greater the source of income from the regional potential, the more flexible the region will be to accommodate the interests of the community. Where are the interests of the community without the content of the interests of the central government which are not in accordance with the needs of the people in the regions.

The Book of Grants and Social Assistance Sourced from the APBD can also be a reference in order to provide understanding and guidance for regional financial managers in providing, budgeting, implementing and administering, reporting, accountability and monitoring and evaluating grants and social assistance.

3. Land and Building Tax

Property tax (PBB) has an important role in terms of local government finances, local governments in most developing countries will be able to manage their finances but property rights are related to property taxes. If local governments are expected to play a significant role in service sector finance (eg education, health), as they should they will need access to more elastic revenue sources.

4. Excise Tax

Excise taxes have significant potential for regional revenue sources, especially for reasons of administration and efficiency. Especially the excise tax on vehicles. The tax is clearly more exploitable than is usual in most countries from an administrative perspective in the form of a fuel tax and an auto tax. Fuel taxes are also related to road use, and external effects such as vehicle accidents, pollution and congestion.

Privatization of toll roads could in principle serve a tax benefit function, based on features of the age and engine size of vehicles (older, bigger cars usually contribute more to pollution), location of vehicles (cars in cities add to pollution, and congestion), driver records (20 percent of drivers are responsible for 80 percent of accidents), and especially the wheel weight of the vehicle (heavy vehicles rapidly damage more roads, and require roads that are more expensive to build).

5. Income Taxes (Personal Income Taxes)

Among the few countries where sub-national governments have a large spending role, and are largely fiscally autonomous are the Nordic countries. This regional income tax is basically imposed at a fixed rate. At the regional level, the same tax base is established as the national income tax and is collected by the central government.

6. Profit Sharing Fund

According to PP No. 55 of 2005 Article 19 Paragraph 1, revenue-sharing funds (DBH) consist of taxes and natural resources. Tax DBH includes Land and Building Tax (PBB), Land and Building Rights Acquisition Share (BPHTB), and Income Tax. Meanwhile DBH of natural resources includes forestry, general mining, fisheries, oil mining, gas mining, and geothermal mining.

The amount of DBH is as follows: The amount of revenue sharing from the United Nations with a balance of 10 percent for the regions. The amount of state revenue-sharing funds is from BPHTB with a balance of 20 percent for the government and 80 percent for the regions. The amount of income tax revenue-sharing distributed to the regions is 20 percent. Profit-sharing funds from natural resources are determined respectively in accordance with laws and regulations.

7. General Allocation Fund

General allocation funds (DAU) are funds originating from the APBN, allocated with the aim of equal distribution of financial capacity among regions to finance their expenditure needs in the context of implementing decentralization. The way to calculate DAU according to the provisions is as follows:

DAU is determined to be at least 25 percent of domestic revenue stipulated in the APBN. The DAU for provinces and districts/municipalities is set at 10 percent and 90 percent respectively of the general allocation funds.

The DAU for a certain regency or city area is determined based on multiplying the amount of general allocation funds for the regency or city area determined by the APBN with the portion of the regency or city area. The portion of the regency or city area as referred to above is the proportion of the weight of the regency or city area throughout Indonesia. DAU for a region is determined by the size of a region’s fiscal gap, which is the difference between regional needs and regional potential.

8. Special Allocation Fund

According to Law No. 33 of 2004, special allocation funds (DAK) are funds originating from APBN revenues allocated to certain regions. The purpose of DAK is to help fund special activities which are regional affairs and in accordance with national priorities. These special activities are: Needs that cannot be estimated with general allocations. Needs that are national commitments or priorities.

9. Other Legitimate Regional Revenues

Furthermore, according to Government Regulation Number 105 of 2000 concerning a Regional Financial Management it is said that regional income is a recognized regional government right as an addition to net worth. Regional revenue is money that enters a region within a certain budget year.

In Law Number 25 of 1999 Article 21 fattens, that an expenditure budget in the APBD cannot or may not exceed the revenue budget.

In the elucidation of the article, it is stated that regions cannot or may not budget for expenditures without prior certainty regarding the availability of sources of financing and also encourage regions to be able to increase the efficiency of their expenditures. In line with this, Government Regulation Number 105 of 2000 concerning Regional Financial Management states that the amount of expenditure budgeted in an APBD is an upper limit for each type of expenditure.