Government prepares incentives for green industry

JAKARTA. The government is preparing a series of fiscal incentives to promote the development of green industry in the nature-rich resource country, an industry official says.

The fiscal incentives would, among other things, provide a tax allowance to firms that adopted an ecofriendly approach in their industrial activities, Industry Minister MS Hidayat said on Tuesday in Jakarta.

So-called “green industries” apply various ecofriendly measures such as clean production, energy conservation, resource efficiency, and adopt eco-design and low carbon technology.

“The Industry Ministry is in discussions with the Environment Ministry to outline the criteria that industries would have to fulfill to get the incentives,” Hidayat told reporters at his office.

In line with a commitment made a few years ago, Indonesia is aiming to cut its green house gas emissions in 2020 by 26 percent on its own and 41 percent with international aid.

As with in other countries, the industrial sector is a key contributor to green house gas emissions in Indonesia as in its development, it engages the exploitation of natural resources and releases sizable amounts of emissions. Cement, steel, pulp and paper, ceramics and fertilizers are among the industries that contribute the biggest share of emissions, according to the ministry.

Despite the urgency to cut industrial emissions, the government has provided limited incentives for the private sector to spur the green industry. Thus far, it has only offered discounts for the purchase of more efficient machinery in the textile, footwear and sugar industries, which since its implementation in 2007, has cut energy consumption by 25 percent and boosted productivity by 17 percent, according to the Industry Ministry.

Shinta Kamdani, the Indonesian Chamber of Commerce and Industry (Kadin) deputy chairwoman for environment and climate change, said that incentives would be necessary as the adoption of ecofriendly methods required sizable investments due to high production costs, which would result in higher retail prices.

“Indonesian consumers are still not fully aware of the need to buy products produced by the green industry. Therefore, they are not willing to pay higher prices for these products,” she told The Jakarta Post, adding that as the prices of these products were more expensive than normal products, they would lose their competitive edge in the local market.

Shinta said the government could offer incentives to both business players and consumers. Tax allowances, including import duty reductions on the purchase of raw materials and corporate income tax cuts, would meet the demands of industrial firms, while reducing prices would help increase consumer willingness to buy 
the products.

Neighboring Singapore previously offered accelerated depreciation allowances for firms utilizing ecofriendly equipment, while Thailand slashed corporate income tax for three years for firms certified as users of “alternative technology”.

Shinta said that Kadin would closely communicate with the government to develop green industry concepts along with much-need incentives to foster its growth in the country and that Kadin planned on teaming up with the Environment Ministry next week to set up a task force to execute the program.

Task force results would be expected at the end of this year, Shinta added.

(Linda Yulisman/The Jakarta Post)