Tax deductions urged to support corporate social responsibility
The Jakarta Post Jakarta
Despite the old adage that giving should be devoid of ulterior motives, tax deductions should nevertheless be offered to entice companies into fulfilling their social responsibilities, activists say.
"The government could introduce tax deductions as an incentive to businesses practicing CSR (corporate social responsibility)," Transparency International Indonesia secretary-general Emmy Hafild said.
CSR is a commitment by a business to contribute to sustainable economic development of workers, the local community surrounding the company, and society at large to improve the quality of life in ways that are good both for business and for development, she said recently.
The practice of giving tax incentives to firms to support their social activities has long been common in several Asian countries, such as the Philippines, as well as developed countries like the United States and the United Kingdom.
In the Philippines, the Philippine Business for Social Progress, an independent organization providing CSR consultancy, has developed a self-taxation system for companies by allocating one percent of their net profit to social development projects.
Meanwhile, the United States and the United Kingdom have implemented what is called the Socially Responsible Investment (SRI) scheme, which offers incentives to investors who sustain a triple bottom line -- the economy, social development and environmental protection -- scenario for their businesses.
Currently, some 12 percent of the investment funds managed in the United States come from the SRI scheme.
At the global level, multistakeholders supported by the United Nations have developed the Global Reporting Initiative, which contains a set of guidelines on how to report a company's performance regarding social and environmental issues.
The Office of the State Minister for the Environment introduced a similar system, known as Sustainability Reporting, earlier this year, which could be used as a basis for providing tax deductions so as to encourage the development of corporate social responsibility.
Indonesian Consumers Foundation (YLKI) chairwoman Indah Suksmaningsih supported the idea, saying it could provide an alternative channel for funding community development.
"The latest survey by the YLKI shows that 41 percent of our respondents doubted whether tax-generated revenue was actually used for development," added Indah.
However, giving tax breaks for companies engaging in social activities, said sociologist Imam B. Prasodjo, must be done carefully, as the potential for abuse of tax law in Indonesia was high.
"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 study the actual implementation of corporate social activities and to survey how effective the fund was in developing sustainable economic growth.
"The introduction of tax incentives should not raise new problems. Thus, there must be proper administrative and field audits of the companies," he added. "A better system of taxation must be prepared beforehand to avoid losses arising through the extending of tax incentives." (003)