The use of energy was formerly not as much as these days, and the environmental issue was also not this problematical. At that time, nature could previously neutralize itself from the impact of energy consumption. Nowadays, the rapid human population along with their needs to fulfill their demands in all of life aspects has been the major booster for massive fossil-fuel consumption. This has inevitably increased the volume of carbon emissions on earth, and further caused the greatest environmental problem in the history, known as “global warming”. Without any appropriate actions, global average temperature at least have 50% chance of exceeding 50C change during the following decades, and such change would transform the physical geography of the world, with catastrophic and irreversible consequences. Many countries and independent bodies may have different approaches to deal with this issue.
One of the most recent controversial versions in the history was the documentary film named “Inconvenience Truth” starred by Al Gore, Former US Vice President and Nobel Peace Prize Winner 2007.
In a level of a country, one of the approaches to deal with global warming issues is designed from fiscal perspective. Using tax as a tool, many governments have applied what is called green tax. Green tax or known also as environmental tax or pollutant tax is a government policy instrument imposed on environment pollutants or goods whose use produces such pollutants. It is levied on every unit of carbon emitted from the consumption of fossil-based energy. The tax authorities collect taxes on consumption of fossil-fuel products at the rate proportional to the carbon content of the consumed fossil-fuel products. It can be said that carbon tax is the most shining star of all levies under green taxation, with the targets that are big corporation dealing with huge oil consumption.
Fuel Subsidy versus Carbon Tax
Carbon tax plays an important role in the side of both budgetary and regulatory functions of the State Budget. The Government will price every certain volume of carbon emission released by the polluters. In this way, many believe that reducing fuel subsidy and collection of carbon tax are jointly used as the mechanism in facing both environmental issue and economic problems Both instruments may reduce the over budget issue faced by the Government due to the current increase in the international oil prices. Furthermore, it will also make Indonesia contribute in the international movements on dealing with the climate change problem.
It is very overwhelming to witness the fact that from year to year, fuel subsidy has become a wasteful expenditure in the Indonesia’s State Budget. According to the International Energy Agency, Indonesia was ranked as the 9th of the Top 25 Countries providing the biggest budget for domestic fuel subsidy. The low price of oil in Indonesia which is under international market prices has created the condition that the Government should provide subsidies. Thus, when the international oil price continues to increase, the Indonesian Government has finally rushed to revise its policies on domestic fuel prices for consumption by none other than reducing fuel subsidy. Positively, people’s dependency on oil is also forced to be minimized, particularly by starting to use more environment-friendly energy as the oil substitution. This, off course, excludes coal since it has a tendency in accelerating further impact of carbon emission.
In addition, for a developing country like Indonesia, collecting taxes from its citizens is seemingly to be an issue. Taxing a small group of polluting industries is far simpler to enforce than taxing millions of employees. The net effect of this change in taxation is that the total taxes collected will increase.
The academic research held by Arief Anshory Yusuf and Arief Ramayandia, Center for Economics and Development Studies (CEDS) from Padjadjaran University (UNPAD), revealed that using carbon tax as a policy instrument to deal with the current international oil prices related problem for Indonesia is relatively superior to using a fuel subsidy reduction instrument. Compared to the endeavor in reducing the subsidy for fuel consumption, the carbon tax policy could also give the same amount of the Government budget savings with a lower cost on the economy. Further, it is also proven to be more environmentally friendly in the sense that it accelerates the decline in the CO2 emission. it also brings a better implication towards the income equality and the poverty impact than the previous one. This research suggests that the imposition of carbon tax policy is considerably a better option for Indonesia when planning to apply the environment-friendly type of policies.
Green Tax versus Green Incentive
In most developed countries, green tax has been applied and given contribution to total tax revenue. Based on the European Environment Agency, for year 2003, Denmark was the country having contribution of green tax to total tax revenue up to 10.27%, followed by Netherlands (8.93%), United Kingdom (7.57%), Germany (7.44%) and Norway (6.86%).
Makmun, a researcher from the Indonesian Fiscal Agency in his essay, states that green tax has been accommodated in the tax bill but has not yet been ratified. Makmun believed that there are some potential problems will arise. First, there is a concern in practice that there will be difficult to distinguish whether the green tax is intended for budgetary or regulatory purposes. This is caused from the aspect of its function. The green tax is no different from other taxes levied, except on target to be achieved. Substantially, green tax is different from the existing taxes, with the regulatory function which is or environmental protection. Second, in its implementation also has the potential emergence of overlapping, taxpayers that have been subject to various types of taxes will be subject to new taxes. As a result, long before the draft of law on Regional Taxes and Levies are ratified, the tax payers have given a negative response signal. Yet, when we assessed the natural capital acquired by entrepreneurs of natural resources sector, the damage as impact of their activities was so big.
Compared to green taxes, fiscal incentives (green incentives) essentially have the same purposes that are to preserve the environment, but they have a different view in its application. Green incentive is more focused incentives in the form of various types of fiscal incentives. Such policies are commonly implemented in different shapes, by many developing and developed countries. Since 2008, Philippine, for example, has implemented a general tax rate of 35% with a term of 7 years tax holiday, Guatemala, since 2003, can also apply the general tax rate of 31% with a term of 10 years tax holiday. While Nicaragua (since 2005) and Panama (since 2004) apply the general tax rate of 30% with a tax holiday term 7. The Development Bank of Japan has funded several projects developing renewable energy with a fixed rate (fixed) lower than market interest rates with maturities of 13-15 years. The Deutche Bank Wiederbau provides loans with fixed interest rates lower than market interest rate for a period of 20 years.
What about Indonesia? In the level of policy makers, all of parties are expected to have the same vision and mission that are to preserve the environment and reduce the impacts of global warming. Every policy is carefully made based on comprehensive analysis of the results and the impact to other aspects, whether green taxes, subsidies or incentives are to be applied. Further, in the level of policy executives, the administration of green taxes should be clearly conducted and allocated merely for environment preservation and people’s welfare. Without these attitudes, it is not impossible to witness more and more environmental destructions in a short term which will eventually cause bad effects to the country’s welfare and economy. Hopefully, it is also very possible to witness accurate and fast actions taken by the country to overcome the global warming issues.
