The Political Economy of Taxation in Colonial Indonesia, Java

A review of From Revenue Farming to State Monopoly: The Political Economy of Taxation in Colonial Indonesia, Java c. 1816 to 1942, by Abdul Wahid.

Expanding territorial and political influence has long been a conventional barometer for the strength of a state. In this dissertation, however, Wahid turns our attention to how state strength is reflected and shaped by mundane administrative tasks – specifically, tax collection. He persuasively argues that the colonial fiscal system in Java is not simply a manifestation of state power but also helps to form it. Through an investigation of the evolution of tax policies on Java up from the nineteenth century up to the eve of the Second World War, Wahid demonstrates how a weak but predatory “nightwatchman” state centralized into a conflicted developmental one.

The introduction gives a comprehensive review of the existing literature on taxes in the Dutch East Indies through which Wahid develops an approximate periodization: a revenue farming period from 1816 to 1895, a transition period from 1895 to 1915 and a state monopoly period from 1916 to 1942. He makes the contemporary relevance of his thesis clear by stating early on that the policies of the post-colonial state continue to be influenced by colonial legacies and institutions. His research questions center around how, when and why the state develops an impetus for fiscal reform as well as its attendant impact on those that it governs. They set the stage for a systematic analysis of various debates that emerge on tax policies over the years that the colonial state evolved.

Chapter 2 elucidates the origins of the colonial tax structure and the changing position of revenue farming within it. Unlike existing historiography, which characterizes colonial rule as a disruption of the indigenous, Wahid shows that colonial taxes were initially rooted in traditional forms of taxes, namely corvee labor and payments through agricultural produce. When the Cultivation System was introduced in 1830, this system of forced deliveries was the primary source of revenue for the state with revenue farms providing a subsidiary income. Its dissolution in 1870 resulted in a growing reliance of taxes to make up for the loss of income and new forms of taxes such as poll taxes paid in cash were gradually introduced. As taxes became more crucial to the state, revenue farms were replaced by more centralized state tax collection that sought to maximize both profit and welfare. It is against this backdrop of continuous tension between the need to fill the colonial state coffers and a growing ethical imperative that the tax system changed over the years.

The next two chapters discuss the general features of the tax farming period and its impact on the native population. The colonial government allowed the power of the Chinese business class to grow by auctioning the right to collect taxes and licenses for product monopolies. This led to what Wahid termed as a “double colonialism:” political conquest by the Dutch and economic hegemony from the Chinese often to the detriment of the Javanese. He positions opium farming at the center of this section, and justifiably so, since opium provided most of the revenue during this period. Such a system of revenue collection contributed to social tension, violent unrest between competing elite groups and increasing corruption.

This part of the narrative might sound familiar to readers of Rush’s classic 1990 monograph Opium to Java: Revenue Farming and Chinese Enterprise in Colonial Indonesia, but Wahid builds on this work in three ways. First, he adopts the state’s perspective rather than that of the tax farmers, enabling the reader to follow the changes to the policy from the top. Second, he pays close attention to the regional variation in various tax regimes of the different provinces in Java, thus highlighting the uneven impact of the system on the ground. Third, he provides an integrated view of the entire system by discussing opium tax farms in juxtaposition with smaller tax farms (kleine verpachte middelen) on enterprises such as selling fish, pawnshops and slaughtering cattle. This section therefore brings the fiscal system in colonial Java to light in a more holistic way.

Chapter 5 focuses on the reform period at the end of the nineteenth century when tax farms were gradually abolished and state taxes were collected directly. While part of the impetus for reform was social concern about problems such as opium addiction, the profit motive continued to dilute such good intentions. While the Chinese tax farmers suffered through a period of economic decline, the colonial state profited by running their own monopolies. This exposed the Chinese’s weak bargaining position with the government despite their economic importance. Wahid argues that these reforms also brought the Netherlands Indies one step closer to being a modern fiscal state that no longer had any need for intermediaries that could challenge its power. Whether such a modern state improved the welfare of people under its rule is the issue at the center of the next chapter. Here, he examines the new government monopolies in opium, salt (zoutregie) and pawnshops (pandhuizenregie) more thoroughly. Uncovering fresh details about little known events such as the intermittent unrest among Madura local salt producers in the 1920s-30s, he shows that government monopolies still worked to the detriment of indigenous producers. Hence, the Dutch colonial state’s aspirations to ethical rule resulted in greater centralization without substantially reducing social problems.

The seventh chapter further delves into the question of social welfare by investigating tax burden and reactions of the population in Java. Using data from a study commissioned by the colonial government in 1920, he synthesizes various ways this data could be interpreted in order to answer the question of which segment of the population bore the greatest tax load. The colonial Committee for Tax Reform in 1920 had eventually concluded that the indigenous population was not overly taxed relative to others such as the Chinese and Europeans. Wahid, however, synthesized recent scholarly literature to show that these conclusions were flawed as the data discounted taxes on labour and in kind provided by the indigenous population in their calculation of tax burden.

Moreover, while this study generally focuses on Java, Wahid also reveals widespread dissatisfaction with the tax regime in all segments of the population: vociferous European and Chinese protests in the newspapers, complaints of Sarekat Islam to the Volksraad and anti-tax rebellions in West Sumatra and West Kalimantan. This dissatisfaction was not necessarily a sign of the states’ weakness. Whether action was taken through or against the state, by 1920, it no longer took place outside state structures. The concluding chapter therefore reiterates that the development of the tax system had played a significant role in shaping a modern late colonial state with centralized power.

On the whole, Wahid’s study provides a detailed, nuanced and holistic view of the fiscal system in the period under study and will be of interest to scholars of Indonesia’s colonial past. As modern Indonesia continues to grapple with finding a socially optimal equilibrium between a centralized or decentralized form of government, the debates in this dissertation certainly provide useful parallels with the past. This dissertation is of interest for a wider audience given the contemporary relevance that was identified and mentioned in its introduction. Ultimately, Wahid does an excellent job at synthesizing copious amounts of data into a lively and accessible narrative. His work has tremendous potential to engage deeply in issues of government decision-making that is still very much relevant today.

Faizah Zakaria
Department of History
Yale University
faizah.zakaria@yale.edu

Primary Sources

Kolonial Verslaag, 1848-1924
Statistisch Jaaroverzicht van Nederlandsch-Indie, 1925-30)
Indisch Verslag (Indies Report, 1931 – 1940)
Population censuses of 1920 and 1930
Changing Economy in Indonesia series, a comprehensive compilation of statistical data on various aspects of Indonesian economic history during the colonial period made available online through the International Institute for Social History
Various newspapers and journals from the period under study
Documents collected from Ministerie van Kolonien, Departement van Financien, Archief Regionaal Semarang, Administratief Verslaag van Residentie Soerakarta, KITLV (Koninklijk Instituut van Taal – Land en -Volkenkunde) and ANRI (Arsip Nasional Republik Indonesia)

Dissertation Information

Utrecht University 2013. 327 pp. Primary Advisor: Jan Luiten van Zanden.

Image: An example of some of the lovely old Dutch colonial buildings in Jakarta, Wikimedia Commons.

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