Indonesian government plan to introduce excise tax on plastic bags

The Indonesian government is planning to impose excise tax on plastic bags as soon as July 2018, according to media reports. There are no details on the tax rate, however authorities are targeting to collect IDR 500 billion ($37 million) worth of excise tax from plastic bags. A reversed calculation based on annual production of 500,000 tons of plastic bags suggests a tax rate of IDR 1000 ($0.073) per kilogram.

This is not the first time Indonesian government announce such tax. In 2016, it proposed an excise tax of IDR 200 ($0.02) on plastic bottles and packaging in an attempt to raise tax revenue, while protecting the environment.

There has been fierce criticism related to the excise tax, especially from the Indonesian Olefin & Plastic Industry Association (Inaplas), who claims that such tax would hurt the local companies given the thin profit margins. Despite the government’s readiness to provide fiscal incentive for the production of environmental friendly plastic bags, it is estimated eco-plastic bags can only meet 1 per cent of Indonesia's total plastic bags demand, and therefore, companies might need more time to install production capacity for this type of plastic bags.