Jakarta – Indonesia sets to introduce a new carbon tax, becoming the latest country to introduce the measure as part of its commitment to curb greenhouse gas emissions over the next decade.
The country would impose a minimum of Rp 30 tax per kilogram of carbon dioxide equivalent (CO2e) emitted, according to a final draft of a tax reform bill reviewed by the Globe on Friday.
The tariff was equal to around $2.1 per metric ton CO2e, making it one of the lowest tariffs among countries with similar measures.
That was also 60 percent lower than the government's original carbon tax proposal of $5.2 per metric tons CO2e. When first introducing the bill to the House of Representatives last June, the government expected a high carbon tax to encourage reductions in greenhouse gas emissions and actions against climate change.
However, Arsjad Rasjid, the chairman of the Indonesian Chamber of Commerce and Industry (Kadin), the country's largest business lobby group, argued at the time that the new tax would burden businesses still struggling to recover from the pandemic.
According to the bill's final draft, everyone purchasing goods or services that emits carbon in their production would have to pay the carbon tax.
The bill, however, did not determine the timeframe for carbon tax implementation. It only said that the government and the House would still need to agree on a road map for the carbon tax and carbon market before implementing the measure.
The Rp 30 per kilogram tariff applies when carbon prices in the market fall to or below Rp 30 per kilogram level. The law did not specify which carbon market the country would refer to determine the tariff. The government will detail that and further mechanisms in government regulation and ministerial decrees.
The bill also said that taxpayers involved in carbon trading or offsetting carbon emissions would be eligible for a carbon tax cut.
As one of the Paris Agreement signatory countries, Indonesia is committed to cut its carbon emission by 29 percent from the business as usual scenario by 2030 and zero-emission by 2060.
The agreement, signed on Dec 12, 2015, pledged to keep global warming to less than two degrees Celsius compared to the pre-industrial level. The agreement is also hoping to limit global warming to an increase of 1.5 degrees Celsius if possible.
The carbon tax was part of Indonesia's latest effort to reform its tax codes. Under the 2021 Bill about Tax Codes Harmonization, the government seeks to revise seven previous tax laws in one stroke.
Other reforms in the bill include an increase in the value-added tax tariff to 11 percent from previously 10 percent and the introduction of a tax amnesty program next year.
The bill also introduced a new income tax bracket and widened the threshold for the lowest one. People with an annual taxable income of above Rp 5 billion would pay 35 percent income tax. On the other end of the spectrum, the bill increases the cap of the lowest tax bracket – which carries a 5 percent tariff – to Rp 60 million, from Rp 50 million.
"The government believes that the bill... will help build a fair, healthy, effective and accountable taxation system to safeguard Indonesia's interests today and in the future. The implementation of the various provisions contained in the bill is expected to play a role in supporting efforts to accelerate economic recovery and create a sustainable economy," Finance Minister Sri Mulyani Indrawati said on Thursday.
The House was expected to ratify the bill into law next week, Sri Mulyani said.