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Indonesia: Postponement of the implementation of Carbon Tax

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In brief

The Carbon Tax was introduced in Law No. 7/2021 on Harmonization of Tax Regulation. The Carbon Tax will be imposed on carbon emissions that have a negative impact on the environment. The law stated that the Carbon Tax would be applied starting on 1 April 2022 for coal fired power plants. The law requires an implementing regulation in the form of a Minister of Finance regulation to stipulate the tariff and basis of the Carbon Tax, and a government regulation to stipulate the tax subject and tax object. There has to be consultation on the regulations with the Indonesian parliament.

According to the information available in the online media yesterday, the Indonesian Government has now decided to postpone the implementation of the Carbon Tax. The Minister of Finance stated that a coordination is required to synchronize with the carbon market roadmap. The Minister also said that the implementation of the Carbon Tax is quite complex, and the Carbon Tax rate is different for each country.

Earlier this week, the Head of the Fiscal Policy Agency stated that the Carbon Tax is likely to be implemented in July 2022. The Fiscal Policy Agency is currently preparing the implementing regulation.

Actions to consider

The Carbon Tax will only be effective when the implementing regulations are issued, so do keep an eye out for updates on this. The full impact of the Carbon Tax on your business won’t be known until the implementing regulations are issued.

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Ponti Partogi is head of the Tax and Trade Practice Group at Hadiputranto, Hadinoto & Partners (HHP Law Firm), a member of Baker & McKenzie International. He has been practicing for more than 20 years, focusing on domestic and international tax and trade issues relating to inbound and outbound investment and cross-border corporate exercises including JVs, M&As, divestitures, spin-offs and takeovers. His combined legal and accounting background allows him to provide comprehensive tax advice on various transactions both from the legal and the accounting perspective.

Author

Ria Muhariastuti is a senior tax specialist in the Tax and Customs Practice Group at HHP Law Firm, a member firm of Baker & McKenzie International. She concentrates on domestic and international tax relating to inbound and outbound investment, multinational companies and private banking for individuals. She has also assisted clients on matters relating to wealth management and business restructuring. Ria handles clients from various sectors such as oil and gas, IT/C, consumer goods, logistics and manufacturing. Her extensive experience as well as her tax background allows her to provide comprehensive tax advice on a wide range of transactions.

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