Businesses frown on carbon tax as govt, House debates tax bill
The government’s plan to impose a carbon tax through an amendment of the 1983 General Taxation (KUP) Law has drawn an intense debate about its pros and cons. Many business associations have voiced their opposition, saying it would reduce the competitiveness of many industries and hit their consumers disproportionately. They prefer emissions trading instead.
In total, 18 business associations and all state-owned banks addressed their objection to the planned carbon tax in a hearing about the KUP Law revision with the House of Representatives’ Commission XI, which oversees financial affairs. They urged the commission to exclude the carbon tax from the bill on the grounds that it would generally weaken both domestic businesses and consumers’ struggle amid the recession.1
The loudest objections among the 18 associations came from the Indonesian Ceramic Industry Association (Asaki), the Indonesian Olefin, Aromatic and Plastic Industry Association’s (Inaplas), the Indonesian Filament and Fiber Producers Association (APSyFI), the Indonesian Cement Association (ASI) and the Indonesian Coal Mining Association (APBI).
They argued that the carbon tax would increase production costs in the industry and manifest in the form of unattractive prices, adding that this situation would prompt imports of cheaper manufacturing products from competitor countries, especially China, India, Vietnam, Thailand and Malaysia.2 3 In the end, they warned, the new tax would trigger unemployment.4 5
If the target is to collect revenue while also mitigating the effects of climate change, the associations argued, the best way to achieve both would be through carbon trading instead of a carbon tax.6 Carbon trading would be more reliable in the present’s situation, giving the domestic market some time before it is fully prepared for a carbon tax.7
Their objections, however, could fall on deaf ears, as the government, a majority of lawmakers, academics, thinktanks and green activists mostly support the carbon tax. They perceive it as an effective instrument to cut CO2 emissions but also underlined the need to ensure it would not harm the public.8 In the government’s perspective, the carbon tax is superior to carbon trading as it requires a far simpler governance and surveillance system than carbon trading — making it less costly. Nevertheless, the government seems to remain open to other alternatives.9
The government and the House aim to finish the deliberations on the KUP bill before the end of this year. The government aims to use the amended KUP law to expand the tax base and, therefore, increase tax revenue in 2023, when the government has to restore its budget deficit to below 3 percent of gross domestic product (GDP). However, some members of Commission XI were unsure if the deliberations could be completed in the next few months as the bill’s problem inventory list (DIM) is not yet ready.
The plan for a carbon tax has been on and off the table because the country’s fossil fuel industry is immensely powerful. Now that the carbon tax is already included in the KUP bill, the tax has drawn public attention, primarily with regard to how it can be implemented and the extent of its impact. People mainly question whether the tax would be collected only within firm-level carbon-generating upstream activities or manifest in individual carbon-intensive taxable activities, such as motor vehicles.
The next issue is the rate or how much the carbon tax would cost for corporations and individuals. Currently, the government is contemplating a tax range of US$5 to $10 per ton of CO2 equivalent. This new levy would be imposed on both individual and corporate taxpayers in carbon-intensive industries, covering pulp and paper, cement, power plants, petrochemicals, the automotive industry, palm oil, and food and beverages. It has been suggested that large-scale energy sector be targeted first to promote the use of more environmentally friendly renewable energy.
A carbon tax is favored by some countries and largely praised because of the many success stories surrounding its enactment. In Sweden, a carbon tax effectively cut the country’s carbon emissions by 26 percent in 27 years, with 78 percent economic growth maintained in that same period. After imposing a carbon tax in 2013, Britain has enjoyed a massive shift from coal-based to natural gas-based utilities on top of record-low greenhouse gas emissions since 1890. Despite the pros and cons, carbon taxation is a global movement. The World Bank states that 88 countries intend to use a carbon tax to meet their Paris Agreement goals, representing 56 percent of global emissions. These figures are supplemented by 51 regional and local initiatives. (Read: Govt to impose carbon tax for more revenue to meet emissions target).
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