Indonesian government to introduce an excise tax plan related to plastics

Yogyakarta Indonesia

The Indonesian government led by Joko Widodo is planning to introduce an excise tax plan related to plastics. It is not the first time for the Asian country, because in mid-2016 the government proposed to impose an excise tax of at least IDR 200 (approx. USD $0.02) on plastic bottles and packaging in an attempt to raise tax revenue, while protecting the environment as the tax should lead to a reduction in the consumption of plastic products. It then also conducted a six-month trial in the bigger cities of Indonesia.

The Indonesian Olefin, Aromatic and Plastic Industry Association (Inaplas) has already announced to be against the excise tax saying it will not be a solution to environmental pollution. Instead, the government should focus on enhancing plastic waste treatment. Fajar Budiyono, Secretary-General of Inaplas, is a fierce critic of the excise tax on plastic bags “because – he stated – the additional income for the state will not be significant, while it puts a major burden on the manufacturing industry. Meanwhile, it is impossible for the industry to rapidly – and suddenly – change to bioplastics”.

Although the government has not mentioned an exact excise tax figure, he assumes the government plans to impose an IDR 1,000 excise tax for every kilogram of plastic bags that is produced. This assumption is based on the fact that Indonesia sees the production of 500,000 tons of plastic bags each year, while the government targets to collect IDR 500 billion worth of excise tax from plastic bags in the proposed state budget. Budiyono fears that if domestic plastic bags producers are plagued by the excise tax, then local industries may decide to import plastic bags from abroad.

The government is currently still studying the plastic bags excise tax plan, particularly the exact tariff that will be imposed. A government official said the tariff will not exceed IDR 200 per plastic bag. Meanwhile, the government is also ready to offer fiscal incentives for the import of industrial capital goods for the production of environment-friendly plastic bags.

Indonesian Industry Minister Airlangga Hartarto said “Indonesian plastic bags producers already have a relatively low profit margin and therefore this new proposed excise tax will impact significantly on these companies’ corporate earnings”. Therefore, he proposes to introduce the excise tax gradually, hence providing time to Indonesian plastic bags producers to add eco-friendly bags to their production lines. Currently the installed production capacity of bioplastics is way below capacity of regular plastic (it is estimated eco-plastic bags can only meet 1 percent of Indonesia’s total plastic bags demand) and therefore the change to eco-friendly plastic bags will require plenty of time.

In total, the Indonesian government targets to collect IDR 155.4 trillion (approx. USD $11.62 billion) from excise taxes in the proposed 2018 state budget, which includes income from the proposed plastic bags excise tax. However, the bulk will still originate from tobacco products.

 

 

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