The Indonesian Tax Authority is formulating tax regulations on the use of carbon emissions, known as Carbon Tax. Revenues from the Carbon Tax will be allocated for the development of clean energy, also known as Renewable Energy (RE). The implementation of the Carbon Tax initiative promotes technological innovation, encouraging businesses to opt for green or low-carbon economic activities, thereby reducing carbon dioxide and other greenhouse gas emissions. Additionally, this carbon tax will serve as a climate control instrument in sustainable economic growth with the principle of “Polluter Pays.”
The use of carbon emissions has a negative impact on the environment. The Indonesian government, in line with its commitment to achieving Net Zero Emission (NZE) by 2060 and a 31.89% reduction in emissions by 2030, is taking steps to reduce the use of carbon dioxide and other greenhouse gases. Carbon tax applies to individuals or entities purchasing carbon-containing goods and/or engaging in activities that result in carbon emissions. Carbon tax is one of the Carbon Value Instruments (NEK) with the following objectives:
- Change Behavior: Encourage economic actors to shift towards low-carbon green economic activities.
- Support Emission Reductions: Support medium and long-term greenhouse gas (GHG) emission reduction targets.
- Promote Innovation and Investment: Stimulate the development of carbon markets, technological innovation, and more efficient, low-carbon, and environmentally friendly investments.
Principles of Carbon Tax Implementation:
- Fairness: Based on the “Polluter Pays” principle.
- Affordability: Consider affordability aspects for the benefit of the wider community.
- Gradual: Consider sector readiness to avoid burdening the public.
Furthermore, the government evaluates economic sectors with the highest carbon consumption, such as the pulp and paper industry, cement, power plants, and petrochemicals. The imposition of taxes on carbon emissions is expected to change the behavior of economic actors, encouraging a shift towards low-carbon economic activities.
The carbon tax rate is set higher or equal to the carbon market price per kilogram of equivalent carbon dioxide or an equivalent unit, with a minimum price of IDR 30 per kilogram of equivalent carbon dioxide. If the carbon market price is lower than IDR 30 per kilogram of equivalent carbon dioxide or an equivalent unit, the carbon tax rate is set at a minimum of IDR 30 and is due at the time of:
a. purchasing goods containing carbon;
b. the end of the calendar year period for activities that result in a certain amount of carbon emissions; or
c. other times as further regulated by or based on Government Regulation.
Actually, the Carbon Tax was supposed to be implemented in 2021, as per the Law Number 7 of 2021 concerning Tax Regulation Harmonization (HPP) in April 2021. However, the Carbon Tax has been postponed and is expected to be operational by 2025.
Moreover, the implementation plan for Carbon Tax in Indonesia is designed for a fair and sustainable energy transition:
- In 2021, the development of carbon trading mechanisms will be carried out.
- From 2022 to 2024, tax mechanisms based on emission limits will be applied to the limited power plant sector, particularly coal-fired power plants.
- In 2025 and onwards, full implementation of carbon trading and expansion of the carbon tax sector with staged phases according to the readiness of the related sectors, considering economic conditions, actor readiness, impacts, and scale.
Currently, the Indonesian government is still designing the calculation, collection, payment, reporting, and mechanisms of carbon tax imposition, along with other treatments related to fulfilling carbon tax obligations. Additionally, the government is preparing methods to measure carbon emissions and disseminating this information to the public, as it is closely related to global regulations and national rules for calculating CO2 in a country.
Thoughtful planning and calculations are needed to minimize negative impacts such as inflation and the potential increase in fuel and electricity prices as production costs rise. In the implementation of the carbon tax, the government will focus on sectors that produce greenhouse gas emissions, such as coal-fired power plants, which are major contributors to high emissions.
