Indonesia pushes ahead with carbon tax scheme

The Indonesian government is working on amending the country's tax law, which will include a new carbon tax scheme aimed at increasing state revenue from several industries.

The country's finance ministry has already submitted a draft of the fifth amendment to the prevailing tax law to the people's representative council, one of Indonesia's two elected national legislative assemblies. The draft has also been included in the priority national legislation programme, which will accelerate proceedings with an aim of passing the amendment into law as quickly as possible.

The Indonesian coal mining association last month raised concerns that the new carbon tax scheme might pressure the country's coal industry.

Under the proposed amendment, the government plans to levy a carbon tax on emissions generated from economic activities, or emission sources such as fossil fuels, as well as emissions from factories or motor vehicles. The finance ministry said it is looking at a carbon tax range of $5-10/t CO2 equivalent (CO2e) but this will depend on the effects of the taxation scheme on industry prices. The draft bill has set an initial minimum carbon tax rate of roughly $5.25/t CO2e.

This will be payable on purchase of carbon-containing goods or activities that produce carbon during a certain time frame. Provisions on tax subjects and their collection will be regulated by the finance ministry after coordinating with other relevant ministries and agencies.

Coal-fired power plants will be directly affected by the new carbon tax scheme. The power generation sector accounts for 27pc of the country's total CO2 emissions, with coal-fired power plants producing 118mn t of CO2 in 2019.

By Antonio delos Reyes