The Important Things to Know about Indonesia’s Carbon Tax

With the worsening climatic conditions, countries around the world have agreed to combat climate change through various carbon reduction efforts. Indonesia, too, has submitted its pledge to reduce carbon emissions to 41% by 2030, to the United Nations Framework Convention on Climate Change (UNFCCC), and the Paris Agreement.

The Indonesian government is preparing a progressive emissions reduction program to control the carbon trade, including incentives based on success in lowering greenhouse gas emissions and imposing a carbon tax. In April 2022, the country will implement a carbon price on coal-fired power plants that will also affect the emissions from other sectors of the economy, ultimately reducing national greenhouse gas emissions.

The carbon tax was enacted as part of the government’s tax changes, the most recent in a series of legislative overhauls aimed at making the country more investment-friendly. In this article, we’ll discuss the specifics of Indonesia’s Carbon Tax that foreign and domestic investors must be aware of.

Understanding Indonesia Carbon Tax

How much carbon will be taxed in Indonesia?

Carbon emissions that have a detrimental impact on the environment would be subject to a minimum carbon tax of IDR 75 per kilogram of CO2e or other comparable measurement units (equal to roughly US$5.2 per tCO2e) under Indonesia’s Tax Bill (Article 44G).

Who are the subjects of Indonesia’s Carbon Tax?

The proposed carbon tax would be levied on the following:

• Persons or companies who purchase carbon-containing items and/or engage in carbon-emitting activities;
• Any commodities or actions that result in environmental externalities, such as the depletion of natural resources, pollution, or harm to the environment;
• Carbon-containing goods include, but are not limited to, carbon-emitting fossil fuels;
• Activities in the energy and transportation, agriculture, forestry and peatlands, industrial, and waste treatment sectors that emit carbon. (The five primary sectors in Indonesia that contribute to greenhouse gas emissions.)

What Are The Impacts of Indonesia’s Carbon Tax on Businesses?

Coal-fired power plants, oil and mining, pulp and paper, cement, plastic, petrochemicals, and palm oil plantations, among other carbon-intensive industries, would be the most affected by the imposition of the carbon tax on businessses.

If all five targeted sectors (energy and transportation, agriculture, forestry and peatlands, industrial, and waste treatment sectors) are charged without any exemptions, many firms will have to reassess their strategy.

Indonesia Carbon Tax Roadmap

The first step in developing Indonesia’s carbon tax roadmap was to include a carbon tax in the country’s tax legislation. Following that, the government intends to finalize a presidential decree on the economic value of carbon and build a technological system for a carbon tax and carbon exchange. Finally, by the end of this year, the Ministry of Energy and Mineral Resources is expected to begin a pilot project for carbon trading in the power industry.

Under this project, the businesses that exceed the emission limit would be required to obtain an emission permit certificate (SIE) from another entity whose emissions are within the limit.

Catching Up with the Latest Update on Indonesia Carbon Tax

Indonesia’s carbon tax rate of USD 2.11 per tonne is the bare minimum, but the Tax Bill states that the price would be equivalent to the market price of carbon. Moreover, the MOF (Ministry of Finance) will decide the actual tax rate after consulting with the DPR (Indonesia’s House of Representatives) and shall assume the authority to define how the tax will be administered, whilst the DPR will determine who will be subject to the tax. As a result, much about the carbon tax is still unknown, and there are questions about how it will be implemented.

Under such circumstances, one needs to be aware of the updates on Indonesia’s Carbon Tax. Therefore, InCorp offers a comprehensive range of tax reporting services to ensure your company stays on top of all legal compliances. You may save your operational costs and administrative stress while enhancing your company’s flexibility and development by outsourcing your accounting and tax requirements.

This ensures that your firm receives customized solutions based on your needs and is in compliance with government standard operating procedures. InCorp’s centrally managed services connect their finance, accounting, and tax skills to cover the complete range of compliance demands.

Stay Compliant with Major Policy Overhaul in Indonesia with InCorp

While investing in Indonesia, InCorp will provide you with a seamless company registration experience. Our consultants can further assist you with the acquisition of business licenses with the least delay.

Moreover, if you want to analyze sectors and know more than what the stats say before investing in Indonesia, InCorp’s market research and due diligence team can assist you to review your possible investments. Furthermore, InCorp provides tax and accounting services and can act as your HR entity to carry out HR and recruitment services to help cut overhead costs of setting up a department.