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Indonesia’s carbon tax plan: Will it fix the budget, the climate or neither?
The government wants to introduce a carbon tax but has yet to work out the details, and what’s too much for some is too little for others.
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Carbon emissions are expected to rise globally in 2021 for the first time in three years. (Shutterstock/kodda)
U
nder pressure to fix both a wide budget deficit and meet its climate goals, the government plans to introduce a carbon tax to tackle both issues at once.
The measure is included in a proposed amendment to Law No. 6 of 1983 on general tax provisions and procedures alongside other plans, such as raising value-added tax (VAT) and the high-net-worth individuals (HNWI) tax and a tax amnesty similar to one offered in 2016.
According to the proposed amendment, the carbon tax would help control greenhouse gas (GHG) emissions to underpin Indonesia’s commitments made under the Paris Agreement on climate change. As its Nationally Determined Contribution (NDC), Indonesia aims to reduce emissions by 29 percent against a business-as-usual scenario by 2030, or by up to 41 percent with support from the international community.
“The introduction of new types of levies in particular on carbon taxes is related to environmental externalities,” Finance Minister Sri Mulyani told lawmakers at the House of Representatives on May 20.
Two months earlier, Organisation for Economic Co-operation and Development (OECD) secretary-general Ángel Gurría had encouraged such a measure in Indonesia.
“I hope they [Indonesia’s government] put a big fat price on carbon,” Angel told reporters at an online conference held by the organization on March 18.
Read also: Indonesia aims to tax rich more to finance large pandemic deficit
