Andi Haswidi, Jakarta – Despite strong protests from the business community, the House of Representatives will press ahead with its plan to make corporate social responsibility (CSR) legally mandatory, albeit in a diluted form.
The article on compulsory CSR in the corporations' bill will be retained, despite the protests, but will be confined to resource-based industries, the deputy chairman of the corporations' bill working committee, Choirul Saleh, said here Thursday.
"The special committee approved the corporations' bill yesterday and it will be passed as scheduled on Friday," Choirul told The Jakarta Post.
The revised article states that all companies engaged in the exploitation of natural resources must conduct CSR programs, and will be punished if they fail to do so.
Choirul said that the money used to fund a CSR program would be considered to be part of the company's annual operating costs, and so could be set off against tax.
As for actual figures on the amount of funding that would have to be devoted to CSR, and the sanctions for non-compliance, these issues would be provided for in the new legislation's ancillary regulations.
Initially, the CSR obligation, as stipulated in the bill, applied to a much broader range of businesses, and involved a mandatory contribution of up to 5 percent of a company's net profit.
The inclusion of the CSR requirement at the initiative of the House has been heavily criticized by many as violating the philosophical basis of CSR.
"CSR programs should be voluntarily. They should not be made a corporate responsibility," Indonesian Employers Association (Apindo) chairman Sofyan Wanandi told the Post.
Sofyan argued that CSR, by its very nature, was a voluntary measure instituted by firms in order to help achieve sustainable development through various types of program that benefited all stakeholders. Sofyan said that the decision to consider CSR spending as part of operating costs, as provided for in the bill, could backfire on the state as it could encourage tax evasion.
"Some companies could abuse it by allocating large sums for CSR programs so as to swell their operating costs and thereby reduce their tax liabilities, while all the time keeping the money for themselves," he said, adding that government control would no doubt be ineffective, going by past experience.
Earlier this week, the Indonesian Chamber of Commerce and Industry (Kadin), Indonesian Business Links and dozens of other business associations issued a joint statement saying that making CSR obligatory violated the principles of good governance and best practice, and was, in fact, inimical to the concept of CSR itself.
Despite the criticism of the CSR aspect, Choirul said that the corporations' bill offered a new dawn for corporations in Indonesia, both local and foreign.
"The bill provides for faster registration of companies as it puts in place the necessary legal framework for computerized processing. Another example of progress is that it allows shareholders' meetings to be conducted using teleconferencing facilities," he explained.
In a separate move that could further burden industry, the House is currently preparing to deliberate a bill on local taxes.
The bill, which is sponsored by the government, proposes that local governments be given the right to levy what is referred to as an "environmental tax" on companies with total sales worth more than Rp 300 billion (about US$33 million) a year, other than companies operating in the food processing industry. The amount of the tax will be capped at 0.5 percent of total operating costs.