New Regulation On Economic Instruments In Environmental Matters

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Authors: Narada Kumara

On 10 November 2017, the Indonesian government issued Government Regulation No. 46 of 2017 on Economic Instruments in Environmental Matters (“GR 46/2017”), which came into effect on the same date. GR 46/2017 was issued as the implementing regulation of Articles 42 and 43 of Law No. 32 of 2009 on Environmental Protection and Management.

Environmental economic instruments are a set of economic policies designed to encourage each stakeholder to carry out an effective and efficient environmental management and boost public compliance with precautionary principles and environmental sustainability in Indonesia. In principle, GR 46/2017 provides a reward for any party that preserves and protects the environment; and on the other hand, punishment/liability for any party that causes pollution or damage to the environment.  It is hoped that the implementation of GR 46/2017 will create a balance between the utilization of natural resources and environmental protection and management.

There are three environmental economic instruments under GR 46/2017, namely: i) economic activities and development planning; ii) environmental funding; and iii) incentive and/or disincentive; all of which are divided into sub-instruments.

We set out below several key sub-instruments of the environmental economic instruments.

Compensation/Reward

Based on Article 10 of GR 46/2017, the government will grant compensation/reward to any party that provides environmental services (provider) to protect and preserve the environment, among others:

  1. water system protection;
  2. biodiversity protection;
  3. carbon absorption and storage;
  4. preservation of natural beauty; and/or
  5. other environmental services (including natural resources provisioning, environmental and natural regulation, and preservation of cultural values; also includes, among others, waste storage/stockpiling and waste purifier services or sink).

In addition, it is to be noted that compensation/reward shall be implemented based on an underlying cooperation agreement between the government and environmental services provider.

Environmental Guarantee Fund

In principle, GR 46/2017 obliges any party/activities causing pollution or damage to the environment to provide environmental guarantee funds, of which the fund shall be used by the government to restore the damaged and/or polluted environmental quality. The forms of guarantee funds, among others, are reclamation guarantee fund, post-mining guarantee fund and hazardous waste management insurance.

Article 22 paragraph (1) of GR 46/2017 stipulates that the guarantee funds shall be provided in the forms of time deposit, joint account, bank guarantee, insurance policy and/or other forms in accordance with prevailing laws.

Please note that some of the guarantee funds are not new, since in practice, several forms of the guarantee fund have been implemented by the government before, among others:

  1. environment pollution insurance, which applies to a waste management company based on Article 8 of Minister of Environment Regulation No. 18 of 2009 on Licensing Procedures of Hazardous Waste Management; and
  2. reclamation guarantee fund and post-mining guarantee fund, which applies to a mining company based on Minister of Energy and Mineral Resources Regulation No. 7 of 2014.

Incentive

In order to encourage environmental protection and sustainability, GR 46/2017 adopts the economic benefit approach. Based on Article 31 paragraph (2) of GR 46/2017, the government will grant certain incentives/benefits for parties (including company) with activities involving positive impacts to the environment, among others, as follows:

  1. liability relief;
  2. convenience and/or allowance of requirements for activities;
  3. facilities and/or assistance;
  4. encouragement and guidance;
  5. recognition and/or award; and/or
  6. public announcement to acknowledge positive performance.

GR 46/2017 does not mention the specific form of incentive which will be granted by the government. In addition, based on information we gathered from a relevant government institution, implementation of Article 31 paragraph (2) of GR 46/2017 is still pending to issuance of its implementing regulation. However, although its implementation is still pending, in principle there are similar forms of incentives which are already regulated under other regulations, e.g. exemption of import duty for waste producer company and waste management company based on Minister of Finance Reg. No. 101/PMK.04/2007 on the Exemption of Duty on Equipments and Materials Used to Prevent Environment Pollution.

Tax

Pursuant to Article 38 of GR 46/2017, the government will apply provincial taxes (pajak pusat) and district/local taxes (pajak daerah) to any party with business and/or activities utilizing natural resources, among others, related to the utilization of groundwater, surface water, edible bird’s nest, non metal and rock, motor vehicle fuel and motor vehicle.

In principle, such provision is similar with and already implemented by the government, according to Article 2 of Law No. 28 of 2009 on Local Tax and Retribution (“Local Tax and Retribution Law”). Therefore, in principle there are no new types of taxes (i.e. environmental tax) under GR 46/2017. Nevertheless, GR 46/2017 sets out environmental impact criteria, which as a result, by a business or activity, would affect the basis of tax charge (dasar pengenaan pajak). However, at the moment, there are no clear mechanisms on how the government will implement it.

Retribution/Levies

In addition to taxes, based on GR 46/2017, the government also imposes general services retribution (Retribusi Jasa Umum) to a waste producer company that use services, facilities and infrastructure for waste management provided by the government. Similar to taxes, such general service retribution has been stipulated by the government under Local Tax and Retribution Law.

Under GR 46/2017, the government will charge retribution tariff based on the amount of services utilized. In addition, Article 40 paragraph (3) of GR 46/2017 also authorizes the government to charge retribution tariff on a progressive basis according to the characteristic and volume of the waste garbage produced by parties/activities. However, GR 46/2017 does not provide a clear mechanism on how the government will implement it.

Award/Appreciation

The government also provides an award/appreciation to any party that contributes to environmental protection and management. Pursuant to Article 50 paragraph (1) of GR 46/2017, the government will grant such award/appreciation in the form of money and/or other forms of appreciation. However, based on information we gathered from a relevant government institution, granting of the award under GR 46/2017 is still pending for the issuance of its implementing regulation.

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“The Author would like to acknowledge the contribution of our Junior Associate Fadhli Ramadhan Suryana in preparing this Legal Alert.”

 

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