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Carbon tax, despite paltry rate, has businesses on edge
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Illustration of carbon dioxide emission. Indonesia's new carbon tax is deemed too low to force meaningful change. (Shutterstock/kodda)
T
he government will use tax policies to fight climate change by putting a price on carbon emissions, but businesses have expressed opposition while experts say the provisions will hardly get Indonesia closer to its climate goals.
The Harmonized Tax Law (HPP) passed on Oct. 7 introduces a carbon tax with a rate slightly above the carbon price in the domestic market but with a minimum rate of Rp 30,000 (US$2.10) per ton of carbon dioxide equivalent (CO2e). It will be implemented under a cap-and-trade scheme.
Under the new policy, companies exceeding the emissions threshold are subject to the tax unless they buy carbon credits – a tradable permit to release emissions up to a certain limit – from companies with emissions below the cap that are willing to sell some of their unused allowance.
The policy will be enforced solely on coal-fired power plants (PLTU) beginning in April 2022 and applied to other sectors in a full-scale carbon trading scheme only in 2025.
“This will be done very carefully and gradually, based on the development of the carbon market in Indonesia and the progress on our nationally determined contributions (NDC) target,” Finance Minister Sri Mulyani Indrawati told the reporters via live broadcast on Oct. 7, adding that the government had discussed this with business leaders.
Read also: New carbon tax signals higher power costs amid calls for clarity
Sri Mulyani made no mention of Article 5 in the carbon tax segment of the new law, which mentions the taxation of goods – purchased domestically or imported – and activities that involve carbon emissions. The ministry’s Fiscal Policy Agency (BKF) had yet to respond to The Jakarta Post’s inquiries.
