Originally intended to encourage less plastics consumption and reduce environmental pollution, an excise tax on plastics products, including bottles, bags and other packaging – which was eight years in the making – has now been abandoned by the Indonesian government.
First proposed in 2016, it took until 2022 for the government to make an actual move forward on the tax when it included a revenue collection target for the levy in its 2023 budget. According to local media, the levy would have had a tax of IDR 200 ($0.02) per plastics bottle and IDR 30,000 ($1.91) per kilogram of plastics bags.
Estimates for the revenue that could possibly be collected from the plastics levy for the first time in 2023 were calculated at approximately IDR 980 billion ($625.6 million), almost doubling to IDR 1.85 trillion ($118.1bn) for 2024.
In December 2023, the Indonesian Olefin, Aromatic and Plastic Industry Association (Inaplas) criticised the proposed tax on plastics products and said it would move the financial burden onto consumers. In a country where tap water is unsafe for drinking, the majority of the population is heavily reliant on bottled water.
At the time, Inaplas secretary-general Fajar Budiono argued that plastics provide essential product protection due to their durability and cost-effectiveness, with no affordable alternatives available. And while packaging currently accounts for around 5 per cent of product prices, the tax would increase prices by around 10 per cent, he claimed.
“Consumers would bear the burden of the higher product costs, while micro, small and medium enterprises would be hit hardest, as they were the biggest users of plastics,” said Budiono.
He suggested that the tax would also ultimately reform Indonesia’s plastics industry landscape, lowering demand for domestically manufactured plastics products and increasing imports of untaxed foreign goods. This, he predicted, would drive most domestic producers to shift to trading as their core activity, further pushing up plastics product imports.
“Food and beverage producers might then not produce here,” said Budiono. “They would relocate to another Southeast Asian country, for instance to the Malaysian city of Johor Bahru, and import through the Indonesian island of Batam. That would be cheaper.
“This tax won’t solve anything. It will cause new problems.”
With such criticism from industry players, the government under President Joko Widodo initially said it would not roll out the tax policy, citing concern about maintaining economic activity. The president did, however, sign off on the levy revenue target in the 2024 budget plan. Yet, no revenue had been collected to date this year.
Then, mere weeks before a new government led by Prabowo Subianto was to be sworn in on 1 October, the outgoing administration announced it was no longer going to include the excise tax on plastics products in its 2025 fiscal budget. No reason was offered by the Fiscal Policy Agency of the Ministry of Finance.
The waste problem
Indonesia generates more than 7.8 million tonnes of waste annually and, according to the World Bank, an estimated 60 per cent of this waste is uncollected, disposed of in open dumping sites or leaked from improperly managed landfills. Only an estimated 15 per cent of all waste is currently recycled.
The country is the world’s fifth-largest contributor to ocean plastics waste with the UN estimating that Indonesia produces 3.2m/t of unmanaged plastics waste, of which more than 40 per cent (or 1.29m/t) ends up in the ocean.
According to the Indonesian Institute of Sciences, the most prevalent type of plastics found in samples it collected in 2020 for a study from waste extracted from waterways were plastics bags, at an average across all cities of 16 per cent (see Fig.1).
Meanwhile, a report published in The Jakarta Post estimates that if Indonesia can create a more circular and sustainable materials value chain, as much as $9.3bn in annual value could be unlocked – though the plastics products levy would have contributed even more to the government’s coffers.
The government does have some roadmaps and initiatives drawn up to tackle its plastics problem, with ambitious targets to reduce waste at their sources by 30 per cent, increase waste handling to 70 per cent, and eliminate plastics pollution altogether by 2040.
One such plan is the Plan of Action on Marine Plastic Debris 2017-2025, which aims to reduce marine plastics debris by 70 per cent by 2025. This plan includes strategies for waste reduction, improved waste management infrastructure and public education campaigns.
The three critical aspects of this plan are: coordination between institutions responsible for waste management; application of technology to control plastics debris – including science-based management systems; and societal efforts to reduce, reuse and recycle. Among the various ministries assigned different tasks, the Ministry of Industry has been charged with encouraging the growth of the recycling industry and the industry to produce degradable plastics, while the Ministry of Public Works and Housing is in charge of waste collection infrastructure on river and waste management facilities, and stipulation of plastics waste usage as additives in road construction.
An Extended Producer Responsibility (EPR) system implemented in 2019 – also known as the Roadmap to Waste Reduction by Producers – set a target for producers to reduce the waste generated from products and packaging sales by 30 per cent by 2029. In the roadmap, 2024 was supposed to be the year when manufacturers must submit a long-term EPR plan. However, so far at least, there doesn’t appear to be much happening on this front from industry.
By Trina Tan
