The Effect of Local Own Source Revenue to Local Budget

Nur Afni Yunita and Muhammad Yusra

Lecturer in The Faculty of Economics and Business,

Universitas Malikussaleh, Aceh, Indonesia

Abstract. This Research goal to to know how influence of Local Own Source

Revenue to Local Budget at Province in Indonesia. Source of data at this research

is Report on Local Government Finances which in obtaining from Local

Government Budget which in the form of data about Local Government Budget

at Province in Indonesia start from 2013 to 2017 on Local Government Finances

with a period of perception during 5 year. Data analysis method used method

analysis simple linear regression. Result of this research indicate that Local Own

Source Revenue have an effect to Local Budget at Province in Indonesia.

Keywords: The local budget · Local own source revenue

1 Introduction

Regional revenue to obtain Local Own Source Revenue can be seen from the condition

of local taxes, regional levies and other valid local original revenues. One of the Local

Revenue that is increasingly being improved is through local tax revenue. That is

because taxes are the largest source of regional revenue in the collection of Regional

Original Revenues. Gradually the level of independence of a region will continue to be

pursued even higher through an increase in regional income obtained. The income is

expected to support an increase in regional spending that is also getting bigger.

Local Own Source Revenue whose components are revenue derived from regional

taxes, regional levies, the results of the management of separated regional assets and

other legal Local Own Source Revenue. A large increase in Local Own Source Revenue

is expected to encourage greater accountability, improve regional funding, and also

reduce the source of funding that comes from central government transfers that directly

increase regional independence.

Regional financial potential that is not the same cause a financial gap that can lead

to development disparities between regions. To reduce inequality and to support the

implementation of regional autonomy through the provision of sources of funding, the

issuance of UU No. 25 tahun 1999 [1]

was most recently amended by UU No. 33 Tahun

2004 [2] concerning Financial Balance between the Central Government and regional

governments.

Yunita, N. and Yusra, M.

The Effect of Local Own Source Revenue to Local Budget.

DOI: 10.5220/0010523700002900

In Proceedings of the 20th Malaysia Indonesia International Conference on Economics, Management and Accounting (MIICEMA 2019), pages 593-597

ISBN: 978-989-758-582-1; ISSN: 2655-9064

593

2 Literatur Review

2.1 Local Own Source Revenue

Halim (2001) [3] defines Local Own Source Revenue as revenue obtained by the region

from sources within its own region that are levied based on Regional Regulations and

in accordance with applicable regulations. According to UU No. 34 Tahun 2000 [4] the

Local Own Source Revenue is all regional revenue that comes from the original

economic resources of the region. Regional Revenue according to UU no. 33 Tahun

2004 [2] Article 1 is the right of a Regional Government which is recognized as adding

value to net assets in the period of the year concerned. In accordance with UU No.33

Tahun 2004 [2] concerning Financial Balance between the Central Government and

regions article 6 is as follows: 1) Local Own Source Revenue from: a. Local tax b.

Regional Retribution c. The results of the management of separated regional assets. d.

Other valid Local Original Revenue. 2) Other legal Local Own Source Revenue,

including: a. results of the sale of regional assets which are not separated. b. current

account service c. interest income d. profit difference between the exchange rate of the

rupiah against foreign currencies, and e. commission, deductions or other forms as a

result of the sale and / or procurement of goods and / or services by the Region.

2.2 Local Budget

Local Budget according to Peraturan Pemerintah No. 58 Tahun 2005[5], are all

expenditures from general cash accounts that reduce the equity of current funds, which

are regional obligations within one fiscal year that will not be repaid by the region.

Mardiasmo (2002) [6] defines local budget as all regional expenditures in a certain

fiscal year period that is a burden on the region. As an organization or household, the

government does a lot of expenditure (expenditure) to finance its activities. These

expenditures are not only to run the daily administration but also to finance economic

activities. Based on Permendagri No.13 Tahun 2006[7] shopping is grouped into two

namely indirect shopping and direct shopping. Indirect expenditure is spending that is

considered not directly related to the implementation of programs and activities.

2.3 The Effect of Local Own Source Revenue to Local Budget

Several studies have been conducted to see the effect of regional income on spending.

Abdullah and Halim (2003) [8] found that the tax-spend hypothesis applies to the case

of regional goverment in several Latin American countries, namely Columbia, the

Dominican Republic, Honduras, and Paraguay. Friendman (1978) [9] states that the tax

will increase regional spending, so that it will increase the deficit. Hoover and Sheffrin

(1992) [10] empirically found differences in relations in two different time frames.

They found that for the data sample before the mid-1960s taxes affected spending,

while for the sample data after the 1960s taxes and expenditure did not affect each other

(causally independent). Satria & Munandar (2017) [11] states that changes in the target

of Regional Original Revenue can affect the allocation of expenditure changes in the

same year. From the perspective of agency theory, at the time of pure Local Goverment

MIICEMA 2019 - Malaysia Indonesia International Conference on Economics Management and Accounting

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Budget compilation, the executive (and possibly also with the knowledge and / or

legislative agreement) Local Own Source Revuenue targets are set below the potential,

then carried out adjusment when the budget changes are made. Based on the discussion

above, the proposed research hypothesis can be described as follows:

H: The Local Own Source Revenue influences to Local Budget in Provinces in

Indonesia

Fig.1. Research Framework.

3 Research Methods

The population in this study is the Report on Local Government Finances which in

obtaining from Local Government Budget which in the form of data about Local

Government Budget at Province in Indonesia start from 2013 to 2017 on Local

Government Finances with a period of perception during 5 year. In this study using the

census method, namely by taking the entire population. The object of research is the

Regional Budget in Indonesia. In this study, the location of the study is the center of

financial data for provinces in Indonesia with a data center obtained from the

Directorate General of Fiscal Balance, Ministry of Finance of the Republic of

Indonesia.

The data used in this study are secondary data, that is data that already exists and

do not need to be collected by the researcher themselves (Sekaran, 2006: 77)[12]. The

data collection technique uses documentation.. The analytical method used in this study

is simple linear regression which aims to test and analyze the effect of the Local Own

Source Revenue to Local Budget in the provinces in Indonesia. Data is processed using

the SPSS program. The linear regression model in this study is as follows:

Y = α + β

+ e (1)

4 Results

Descriptive statistical results for Local Budget (LB) and Local Own Source Revenue

(LOSR), can be seen in the following Table 1:

Table 1. Descriptive Research Data.

N Min Max Mean Std. Dev

LOSR

170

77,8

1,3

51.066,0

43.901,5

7,2

3,7

8,4

6,6

Based on table 1, the Regional Expenditure Budget Results for 5 years, from 2013 to

2017, the mean value of 7.2 trillion Rupiahs, the minimum value of regional

Local Own Source

Revenue

Local Budget

The Effect of Local Own Source Revenue to Local Budget

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expenditures of 77.8 billion for North Kalimantan Province in 2013 whereas the

maximum value for Dearah Expenditures is 51.0 Trillion Rupiahs for DKI Jakarta

Province in 2017. The standard deviation value for 3 years of observation is 8.4. The

next variable is Regional Original Revenue obtained a mean value for 5 years

amounting to 3.7 trillion Rupiahs, with a minimum value of 1.3 billion Rupiahs for

North Kalimantan Province in 2013, and a maximum value of 43.9 trillion Rupiahs

obtained by DKI Jakarta Province in 2017. The standard deviation value for 5 years of

observation was 6.6.

The results of hypothesis testing using linear regression from the influence of the

Local Own Source Revenue to Local Budget in Provinces in Indonesia can be seen in

the following:

Y = 4,605 + 0,891 X1 + e (2)

The results showed that the Local Own Source Revenue had a positive effect on

Local Budget in Provinces in Indonesia. This means that if the Local Own Source

Revenue increases Rp. 1 then Local Budget will also increase by Rp. 0.891.

This means that the Local Own Source Revenue also increase Local Budget. These

results explain that provinces that get large Local Own Source Revenue will tend to

have large Local Budget as well. These results provide a strong indication that the

behavior of regional spending will be strongly influenced by sources of revenue, one

of which is from local own source revenue. The greater the acceptance of the Local

own source revenue, the more it reflects a region or province capable of being

independent to offset budgeted local budget expenditures.

In Indonesia, in general, Local Own Source Revenue are allocated to Capital

Expenditure, Local Own Source Revenue Budgets are also allocated for employee

operational expenditure. That is because personnel expenditure will be expected to

improve the performance of the regional apparatus to continue trying to improve public

services, the provision of adequate infrastructure facilities. Furthermore, it can also

improve the administrative capabilities of tax collection and levies in the region so that

an important source of regional revenue namely the Local Own Source Revenue can be

used to finance both physical and non physical development (Satria & Munandar, 2017)

[11]. This was also expressed by Abdullah (2013) [13] who stated that changes in

income, especially Local Own Source Revenue, could be based on the opportunism of

decision makers, especially the bureaucracy in regional work unit. But not infrequently

the changes in the

Local Government Budget also contain the political preferences of

politicians in the Assembly at Provincial.

References

1. Undang-Undang No. 25 Tahun 1999. Tentang Perimbangan Keuangan Pusat dan Dearah.

2. Undang-Undang No. 33 Tahun 2004 tentang Perimbangan Keuangan antara Pemerintah

Pusat dengan Daerah

3. Halim, Abdul. 2001. Manajemen Kuangan Daerah. Yogyakarta: UPP AMP YKPN.

4. Undang-Undang No.34 Tahun 2000 tentang Pajak dan Retribusi Daerah.

5. Peraturan Pemerintah No 58 tahun 2005 tentang Pengelolaan Keuangan Daerah

6. Mardiasmo ,2002. Akuntansi Sektor Publik, Penerbit Andi, Yogyakarta.

MIICEMA 2019 - Malaysia Indonesia International Conference on Economics Management and Accounting

596

7. Peraturan Menteri Dalam Negeri No. 13 tahun 2006 tentang Pedoman Pengelolaan keuangan

Daerah.

8. Abdullah, Syukriy dan Abdul Halim. 2003. Pengaruh Dana Alokasi Umum (DAU) dan

Pendapatan Asli Daerah (PAD) terhadap Belanja Pemerintah Daerah: Studi Kasus

Kabupaten/Kota di Jawa dan Bali. Simposium Nasional Akuntansi, Oktober. Surabaya:

Universitas Airlangga.

9. Friedmen, Milton. 1978. The Limitation and Tax Limitation. Policy Review 5, Summer 1978,

pp. 7-14.

10. Hoover, Kevin D. & Sheffrin, Steven M. 1992. Causation, Spending, and Taxes: Sand in The

Sandbox or Tax Collector for the Welfare State. The American Economic Review. Vol. 82

No. 1. Mar 1992. Pp. 225-248.

11. Satria, Dy Ilham dan Munandar. 2017. Model Pemanfaatan Pendapatan Asli Daerah dan

Dana Alokasi Khusus dalam APBD Kabupaten/Kota Di Provinsi Aceh. Jurnal Visoner &

Strategis. Vol. 6 No. 2. September 2017 pp. 1-7.

12. Sekaran, Uma. 2006. Research Methods for Business. Buku Satu, Edisi keempat.

Jakarta: Salemba Empat.

13. Abdullah, Syukriy dan Abdul Halim. 2003. Pengaruh Dana Alokasi Umum (DAU) dan

Pendapatan Asli Daerah (PAD) terhadap Belanja Pemerintah Daerah: Studi Kasus

Kabupaten/Kota di Jawa dan Bali. Simposium Nasional Akuntansi, Oktober. Surabaya:

Universitas Airlangga.

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