Indonesia Eyes $1.7 Billion Windfall From Plastic, Emission Levy

Arys Aditya, Karlis Salna and Harry Suhartono

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Indonesia plans to impose excise duty on plastic bags, sugary drinks and vehicle emissions with the new levies expected to net the government about $1.7 billion in additional revenue annually.The new measures, apart from bolstering tax collections, are aimed at tackling climate change as well as a growing prevalence of chronic diseases, Finance Minister Sri Mulyani Indrawati told lawmakers in Jakarta Wednesday.“This proposal will face resistance from industry and businesses but we have to implement it to protect our environment,” Indrawati said of the plastic bag tax. “The government wants to support more environmentally-friendly products,” she said.The tax on vehicles emitting carbon dioxide will rake in 15.7 trillion rupiah ($1.1 billion) a year, according to a government estimate. Tariffs on sugary beverages from sweetened tea to soda and energy drinks will earn 6.25 trillion rupiah and another 1.6 trillion rupiah will come from the levy on plastic bags.

“It appears that the plan to impose excise on vehicles will be a headwind for vehicles with conventional engines while being supportive for low cost green cars and electrified vehicles,” said Evan Hadiwidjaja, head of research at PT Sinarmas Sekuritas.

The new levies will need the approval of parliament before they take effect. The additional tax collections will be a relief to the government as it faces a $6.4 billion hit from a cut to the corporate tax rate that will be phased in from next year.

The measures underscore growing concerns in Indonesia about the threat posed by climate change, including health risks for the rapidly growing population that already stands at more than 260 million. There are also worries about an increase in the incidence of illnesses such as diabetes and obesity caused by the consumption of sugary drinks.

While Indonesia has also been slow to respond to challenges posed by climate change and excessive use of plastics, there is now a greater sense of urgency. Choking traffic conditions in Jakarta not only have implications for health and the environment, but also cost the city about 100 trillion rupiah a year in economic losses, and have in part prompted plans to relocate the capital to the island of Borneo.

--With assistance from Tassia Sipahutar.

To contact the reporters on this story: Arys Aditya in Jakarta at aaditya5@bloomberg.net;Karlis Salna in Jakarta at ksalna@bloomberg.net;Harry Suhartono in Jakarta at hsuhartono@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Thomas Kutty Abraham, Karlis Salna

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