Tax deduction urged to prop up CSR
The Jakarta Post, Jakarta
Despite an old dictum that gifts should be made without ulterior motives in mind, businesspeople and activists have reiterated calls for the government to offer tax deductions to lure companies to fulfill their social responsibility.
"The government should start introducing tax deductions as an incentive to businesses to meet their CSR (corporate social responsibility)," said Niken Rahmad, the head of corporate communications of Indonesia's largest cigarette maker PT H.M. Sampoerna on the sidelines of a discussion organized by Trisakti University on Wednesday.
However, Niken stressed that the basic intention of business establishments in fulfilling their CSR should not be for the sake of the incentives, but rather a recognition of the need to empower local communities in every possible aspect.
She said the government should design a clear set of regulations on the issue, including simpler bureaucratic procedures, to support businesses. "We have faced minor but nevertheless encumbering problems in obtaining permits to conduct our social work," she said.
The founder of philanthropic fund manager Dompet Dhuafa Republika, Parni Hadi, supported the idea, underlining that whatever benefits are gained from such measures, be it through incentives, promotion or recognition, they should not be the primary motivation to carry out social activities.
The move to give tax incentives to companies to support their social activities is common in several Asian countries, such as the Philippines, as well as in developed nations like the United States and Britain.
In Manila, the Philippine Business for Social Progress, an independent organization providing CSR consultancy, has developed a self-taxation system for companies by setting aside 1 percent of their net profit for social development projects.
The United States and Britain, for their part, have implemented a Socially Responsible Investment (SRI) scheme, offering incentives to investors who sustain a triple bottom line -- economic, social and environmental -- scenario for their businesses.
Currently, some 12 percent of the investment funds in the United States are managed under the SRI scheme.
On the world forum, stakeholders supported by the United Nations have developed the Global Reporting Initiative, which provides a set of guidelines on how to report the performance of a company in terms of social and environmental issues.
The Office of the State Minister for the Environment has introduced a similar system known as Sustainability Reporting earlier this year, which could be used as a basis for implementing tax deductions to develop CSR.
Support also came from the Indonesian Consumers Foundation (YLKI) chairwoman Indah Suksmaningsih, who said the tax deduction measure could provide an alternative channel to fund community development programs.
"The latest survey by YLKI shows that 41 percent of our respondents question whether tax-generated incomes were actually used for development," she added.
However, giving tax breaks for companies carrying out social activities should be done carefully as the possibility of abusing tax regulations in Indonesia is still high, sociologist Imam B. Prasodjo said earlier.
"The government should start by giving tax incentives to companies that have carried out their social responsibilities properly and are recognized as good taxpayers," he said. "It is like saying, 'as a good citizen you are qualified for a tax break'".
Imam suggested that the government set up an independent team to help companies implement their social activities and to survey how effective the funds are in developing sustainable economic growth in the community.
"Introducing tax incentives should not raise any new problems, so appropriate administrative and field audits of the companies are necessary," he added. "A better system of taxation must be prepared beforehand to avoid losses resulting from the incentives." (003)