Implementing Carbon Taxation to Limit Coal Consumption

Building a Sustainable Future: Carbon Taxation on Coal Use in Businesses

  • InCorp Editorial Team
  • 27 February 2023
  • 5 minute reading time

Coal as an energy source has long been a subject of concern due to its significant contributions to air pollution and greenhouse gas emissions. As a result, many countries are turning towards implementing carbon taxation as a means to limit coal consumption. 

The carbon taxation policy aims to price the emissions caused by burning fossil fuels, such as coal. This policy also encourages businesses and individuals to seek alternative cleaner energy sources.

The Coal Consumption Reach Its Higher Use in 2022

Annual reports on coal forecasts show that global use of coal is likely to rise by 1.2% by 2023. 

Despite increased efforts to reduce coal consumption in established countries, the demand is persistently high in developing Asian nations. This situation also forecasts that coal consumption will be unchanged by 2025. 

Due to higher gas prices and the fact that Russian gas is now scarce in Europe, more people are moving to coal. As a result, China, India, and Indonesia, the world’s top three coal producers, will set new production records this year. 

Still, despite high coal prices and comfortable profit margins for miners, there are no signs of a surge in investment in coal projects geared toward exports.

It implies that coal will continue to be the most significant single source of carbon dioxide emissions in the global energy sector. 

Read more: The Future of the Coal Power Plant Business in Indonesia

Regulations on Carbon Taxation for Businesses

Implementing Carbon Taxation to Limit Coal Consumption

Carbon taxes are a penalty and fine imposed on a Company for the excess carbon emitted through its activities. The Indonesian Government specifically released Government Regulation No. 50 in the Year 2022. 

Regulations were released regarding coal taxation to ensure legal certainty with tax obligations. 

Within it, the Government clearly outlines how Carbon Taxes are to be paid either by the taxpayer himself or collected by Carbon Tax collectors. 

Taxpayers must keep a record of their activities that generate carbon emissions and the sale of carbon-containing goods used to calculate the carbon tax payable. The regulation was issued on 12 December 2022 and has been valid. 

Purposes for Implementing Carbon Taxation

With the issuance of such a regulation, business actors and the general public are left wondering what the overarching purpose of implementing carbon taxes may be. 

The first and most important purpose is to reduce carbon emissions and carbon-related activities that are negative for the environment. 

It is also a fiscal tool utilized by the Indonesian Government to generate revenue. This tool also signals a shift to a greener economy. 

Lastly, the imposition of such taxes also alerts the international community regarding the significant shift and awareness of the Government. 

Carbon taxes are designed to enforce accountability and are determined with careful consideration not to discourage business entities from practicing business. 

Carbon taxes charged too high could drive out businesses from a country and shrink economies and growth.

Pros & Cons of Carbon Taxation

Implementing Carbon Taxation to Limit Coal Consumption

Much like any decision, implementing carbon taxation has pros and cons. The move that pushes carbon-intensive industries to comply with strict emission rates is under a lot of pressure. 

The policy disincentivizes companies to produce more and push for economic growth. Another potential harm from this policy is the trade relationship shared between countries. 

A common concern shared by stakeholders is the rapid industrialization of the manufacturing sector, which is the backbone of any economy, especially Indonesia. 

The pros are obvious. Such policies act as a considerable contribution to fight climate change and at a lower cost. 

Immediate environmental benefits, including improved public health, reduced deaths, and cost savings from reduced pollution mitigation efforts, are brought about by introducing carbon taxes.

Carbon Tax Scheme in Indonesia

The new Carbon Tax Government Regulation is released under the legal umbrella issued before Law No. 7 of 2021 concerning Tax Harmonization. 

Both taxpayers who carry out activities that produce carbon emissions and carbon tax collectors are required to fill out a tax return by the provisions of the prevailing laws. 

The deadline for submission of Tax Returns is Annual Tax Returns by four months after the end of the calendar year or Periodic Tax Returns by 20 days after the end of the tax period. 

If the taxpayer does not perform this obligation, then the taxpayer is subject to sanctions under the provisions of the legislation. 

Further provisions regarding the appointment of the intended carbon tax collector and specific criteria will be regulated in a ministerial regulation.

As explained above, tax matters are cumbersome and heavily regulated. However, it also continues to evolve and adjusts to the current circumstances. 

To ease the burdens of businesses, InCorp Indonesia provides services with business licensing and company registration. By entrusting InCorp Indonesia (formerly Cekindo), businesses can allocate more time to core activities.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

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Frequent Asked Questions

As their names suggest, the main differences between the three business kinds in Indonesia lie in the businesses and the purpose of their incorporation. Local company owners (PT) must be Indonesian citizens, as even 1 percent of foreign ownership is not allowed. This type of company is not limited to entering any business field, and restrictions on incorporation are not so tight. On the contrary, a foreign-owned company (PT PMA) is open to international investors, but the maximal percentage of foreign shares differs in various business sectors. Contact InCorp to get the most updated information on the Negative Investment List. International investors tend to open representative offices as a first step to understanding the Indonesian market before setting up a limited liability company. This type is used for marketing and promotion activities and needs the right to sell directly and receive income.

Yes, this mainly applies to import and export businesses. Instead of establishing a company, you can use an under-name import service, an importer of record.

It should take between 30 to 45 days.

There are two main types, namely, primary business licenses and non-primary business licenses. The primary ones commonly apply to various industries, such as general and industrial business licenses. Additional non-primary ones are included, depending on the operations of your business. Examples of non-primary business licenses are operational and commercial licenses.

Yes, you must apply for it to be able to issue work permits for your foreign employees. This permanent business license is also a prerequisite for the applications for other business licenses and import licenses.