Before the end of 2016 the Indonesian government plans to have imposed a controversial excise on plastic packaging. Earlier this year the government had already suggested a IDR 200 (approx. USD $0.02) excise duty for food and beverage products wrapped in plastic packages. However, with all spotlights focused on Indonesia's tax amnesty program this plastic wrapping excise tax has been off analysts' radar. Lets take a closer look at this excise: what is it and why does the government of Southeast Asia's largest economy want to implement it?
According to preliminary information from Indonesia's Finance Ministry, the excise will be imposed on all products wrapped in plastic, including bottles, bags and sachets. However, lower rates may apply for those companies that focus on recycling activities and therefore cause less damage to the environment.
There are three reasons why the Indonesian government is eager to introduce a small additional charge on plastic packaging. Most likely it is the third reason (mentioned below) that is most appealing to the government.
- By making food and beverage products that are wrapped in plastic a little bit more expensive, the government slightly discourages consumption of these products. It is estimated that more than 80 percent of food and beverage products in Indonesia use plastic material for packaging. However, most of these items, such as snacks or soft drinks, are unhealthy. As such, the government tries to improve the overall health of the people through this excise tax on plastic packaging. Moreover, various studies indicate that plastic packaging has a negative impact on people's health. When consuming drinks or food items that are wrapped in plastic material, there are certain chemicals that can migrate from the plastic packaging to the food products and beverages inside the package.
- Indonesia is the world's second-largest plastic waste producer, after China. According to a report from Science, Indonesians use about 187.2 million tons of plastic, each year. Meanwhile, Greeneration Indonesia estimates each Indonesian individual consumes 700 plastic bags per year. Generally, Indonesians have a very low awareness of the importance of a clean environment and environmental sustainability. This is why rivers are usually clogged with plastic and other thrash, particularly in the bigger cities (moreover plastics take considerable time to break down naturally). The higher price of products packed in plastic materials will discourage consumption of these products and therefore there will be less thrash that is dumped in rivers or on streets.
- By imposing this additional excise tax, the government's tax revenue will rise. Given that Indonesia's tax revenue has been disappointing so far this year (and has been disappointing in recent years) the government is eager to find new sources that can deliver some additional state income (this is also the motive behind the tax amnesty program). The government collected a total of IDR 518.4 trillion (approx. USD $39.6 billion) worth of tax revenue (including customs and excise) in the first six months of 2016, down 3.3 percent (y/y) from tax revenue realization in the same period one year earlier, and only 33.7 percent of total targeted tax revenue this year. Having a population that numbers over 255 million people, most of whom have the habit of eating plastic-wrapped snacks and plastic-bottled drinks, this excise tax constitutes a great source of revenue.
However, the excise tax on plastic packaging has also met fierce resistance. Firstly, stakeholders active in Indonesia's food & beverage sector, packaging sector, and petrochemicals all objected to the new excise as it is considered to have a negative impact on sales. This could then even hinder development of Indonesia's manufacturing industry (perhaps giving rise to more food and beverage imports from abroad), while falling consumption of food and drinks may eventually actually lead to fewer tax revenue for the government. Business groups say the government should focus on the development of good waste management systems instead of using the excise as a tool to gain additional state revenue.
Others claim that the new excise is not fair, or even goes against a basic human right. In Indonesia's urban centers people cannot drink water from the tap, while river water is highly polluted. As such they are dependent on plastic-bottled water. Easy access to clean water (including a low sales price) is regarded a primary right of the people, and therefore some opponents of the excise request the government not to touch this segment in order to generate additional state income.
Another problem is that plastic packaging has become a vital component in people's lives. Plastic is a cheap, relatively safe and long-lasting form of packaging for food products and beverages. In recent decades plastic packaging has become very popular, undermining the market shares of glass or tin. Not only access to clean water, but food consumption is also one of the people's basic rights. And given that there is no other (cheap, relatively safe and long-lasting) material that can replace plastic packaging for food products and drinks, plastic-wrapped foods and drinks offer the key source of nutrition for the population. Affordable food and drinks is particularly important for those living below the poverty line as well as the huge group of Indonesians who live just above the poverty line.
Indonesia's Plastic Bags Tax
In February 2016 Indonesia introduced a charge on plastic bags in 22 cities across the archipelago (initiated by Indonesia's Ministry for the Environment and Forestry). For each plastic bag a minimum IDR 200 is charged to the customer. This measure - a six-month trial - has been imposed on all retailers such as supermarkets and vendors and according to news stories has managed to curb consumption of plastic bags to a high degree.
Do you agree with the government's excise tax on plastic bags and packaging?
Voting possible: -
- Yes, I do (59.2%)
- No, I don't (34.2%)
- I don't know (6.6%)
Total amount of votes: 76