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.