The Effectiveness of the Ombudsman in Overseeing Local Fiscal Incentive Policies: A Study on the Potential for Abuse of Local Economic Authority

Abstract

Local fiscal incentive policies in the form of reductions, relief, or exemptions from local taxes and fees, as stipulated in Law No. 1 of 2022 on Financial Relations between the Central Government and Local Governments are intended to promote investment and local economic growth based on local government performance. However, the broad discretion in determining the criteria and recipients of these incentives creates opportunities for abuse of authority, including favoritism toward certain business actors and weak public accountability for these policies. This article aims to analyze the effectiveness of the Ombudsman of the Republic of Indonesia in overseeing local fiscal incentive policies and to identify patterns of potential abuse of local economic authority associated with them. This study employs a normative legal methodology using legislative, conceptual, and case-based approaches, analyzing Law No. 37 of 2008 on the Ombudsman of the Republic of Indonesia, along with the Law on Financial Relations between the Central Government and Local Governments and Law No. 23 of 2014 on Regional Government. The results of the study indicate that the Ombudsman’s authority remains limited to procedural aspects of public service and does not yet cover the substance of fiscal policies involving economic discretion; consequently, gaps in oversight regarding potential conflicts of interest and economic maladministration persist. The non-legally binding nature of the Ombudsman’s recommendations further limits the effectiveness of these preventive functions. Therefore, it is necessary to strengthen institutional collaboration among the Ombudsman, the Government Internal Oversight Agency, and the Business Competition Supervisory Commission, as well as to harmonize regulations regarding the transparency of criteria for granting local fiscal incentives.