Kadin proposes environmental tax incentives

Kadin proposes environmental tax incentives

Urip Hudiono, The Jakarta Post, Jakarta

The government should provide tax incentives to encourage
companies to adopt environmentally friendly businesses, the
Indonesian Chamber of Commerce and Industry (Kadin) said.

Kadin said such a scheme would be more effective than just
imposing restrictive regulations and penalizing errant companies.

"Tax incentives, along with other incentives such as extra
duty and credit facilities, would be more compelling reasons for
businesses to adopt a green approach" the head of Kadin's
commission for environmental conservation, Ilhamy Elias, said.

Speaking at a meeting between the chamber's new board members
and officials of the Office of the State Minister for the
Environment last week, Ilhamy said Kadin proposed companies
proven to be an environmentally friendly operators be given tax
cuts of up to 2.5 percent. Such a scheme was already in effect
in Australia, he said.

However, if a company was found neglectful in its
responsibility towards society and the environment, the
government could then impose an additional tax of 5 percent on
its revenue.

Regarding Kadin's "carrot and stick" tax scheme proposal,
State Minister for the Environment Nabiel Makarim welcomed the
idea, although he said its implementation would need to be
coordinated with other related ministries and regional
administrations.

"Besides coordination, there is also the matter of supervision
-- on how to ensure the scheme will be properly and consistently
carried out," he said.

Separately, the head of tax planning at the Ministry of
Finance's Directorate General of Taxation, Wahyu K. Tumakaka,
said the main problem of the proposed scheme would be determining
which companies were environmentally friendly, and which were
not.

"My office has no such data yet," he said, adding that the
scheme could therefore not be included in the newest taxation
bylaw proposed by the government to the House of Representatives,
but could perhaps be in the future.

The office of the State Minister for the Environment has since
1995 been collecting such data through a program in which
companies are annually rated as "black", "red", "blue", "green"
or "gold", according to the quality of their environmental
management system.

The national executive director of the Indonesian
Environmental Forum (WALHI), Longgena Ginting, criticized the
proposed scheme, saying it would give corporations tax breaks,
but would not have enough powers to stop the bad polluters.

"Even with the existing regulations meant to protect the
environment, only a handful of companies have complied with
them," he told The Jakarta Post.

"And even without such regulations or incentives, corporations
should already know being socially and environmentally
responsible is for their businesses' own good," he said.

Along with proposing a corporate environmental tax scheme,
Kadin has recently suggested the government cut taxes on mining
companies to a maximum of 28 percent, to attract more investment
and increase Indonesia's competitiveness in the sector.

In response, Tumakaka said tax incentives were not the main
driving force for corporations to invest or do business in a
country. Adequate infrastructure -- such as the availability of
highways and electricity -- was more important, he said.