Surface Water Tax on Palm Oil Criticised, Potentially Pressuring Industry and Investment

JAKARTA, KOMPAS.com - Plans by several regional governments to impose a surface water tax (PAP) of Rp 1,700 per palm oil tree per month have drawn sharp criticism from legal experts. The policy is deemed to lack a legal basis and could violate Law Number 1 of 2022 on Financial Relations between the Central Government and Regional Governments (UU HKPD) and Government Regulation Number 35 of 2023 on General Provisions for Regional Taxes and Levies. Director of the Centre for Legal Studies and Advocacy on Natural Resources (Pustaka Alam), Muhamad Zainal Arifin, emphasised that the concept of taxing palm trees through the PAP scheme is an illogical policy and a misunderstanding of the definition of surface water tax. “Palm oil trees only absorb rainwater or dew naturally through the soil, not by sucking up surface water using pumps. Taxing the natural process of plants is a form of forced regulation,” Zainal stated in a press release on Sunday (19/4/2026). Zainal explained that the UU HKPD clearly defines surface water tax as a tax on the extraction and/or utilisation of surface water. Article 1 number 52 of the UU HKPD defines surface water tax as a tax on the extraction and/or utilisation of surface water. This means the tax can only be imposed if there is an active action to take water, such as pumping water from a river, measuring it through a water meter, and then channeling it for specific needs. “As long as there is no actual extraction of water from a river or lake, there is no object for surface water tax. It is impossible to measure how many cubic metres of surface water a palm tree uses,” he said. Several regions planning to implement this PAP include the Riau Provincial Government, West Sumatra, and Bengkulu. For example, the West Sumatra Provincial Government targets revenue of Rp 1 trillion from the levy. As an initial step in 2026, West Sumatra targets PAP receipts of Rp 594 billion, focusing initially on non-smallholder palm oil plantations. Furthermore, Zainal reminded of the tax law principle of nullum tributum sine lege, meaning there can be no tax without a statutory basis.