The Indonesian car sales tax cut could harm the environment
The largest economy in Southeast Asia, Indonesia, has provided incentives to taxpayers through an cut in the car sales taxes for helping the nation’s automobile industry recover from COVID-19 pandemic’s impacts. But the tax cut may harm the environment since more vehicles on the roads can raise carbon emissions.
The sales of cars in Indonesia
Indonesia is known as the second largest car maker and is the largest market for cars within Southeast Asia. In 2011, its automobile sales decreased by over 40%.
Indonesia introduced tax cuts in the month of March to boost the desire of middle- and high-income individuals to purchase cars, Coordinating Minister of Economic Relations Airlangga Hartarto declared.
The government earmarked an amount in the amount of Rs 2.9 trillion (around $200 million) to reduce the tax on sales of cars this year. It’s about 5.4 percent of the tax incentives given out during the swine flu pandemic.
The incentive is applicable only to two-wheel drive vehicles that have less than 1500cc engine capacity and with at minimum 70% of the components are local. The government will extend the incentive until December in three phases:
This tax incentive is believed to assist in accelerating the economic growth of Indonesia. Additionally the government is considering expanding the tax break for vehicle that has a capacity of 2,500cc.
The largest source of revenue for the economy, consumption by households is expected to return to pre-pandemic level following the tax cuts for cars.
Indonesia is one of the most polluted countries on the planet. Indonesians enjoyed lower levels of air pollution when the government implemented a the social distancing law, that meant people couldn’t travel anywhere as offices and schools were shut down. However, when the government relaxed the restrictions, air pollution went up as more motorists drove around.
As a result of the incentive, we can anticipate seeing more private vehicles on roads, generating more carbon dioxide than ever before.
Indonesia is among the top emitters in the world. A report for 2020 from Indonesia’s Ministry of Environment and Forestry indicates that the transportation sector is responsible for the second highest carbon emissions in Indonesia’s energy sector.
Indonesia’s transportation sector is the most pollutant of all Southeast Asian nations. Indonesia emits more than two times the carbon emissions of neighboring Malaysia in 2017.
The huge environmental footprint of supply chain
The Association of Indonesia Automotive Industries has calculated that the reduction in car sales tax could boost sales by 40 percent..
This growing demand will cause factories to make more cars, which will make the environment more vulnerable. Manufacturing cars has a huge carbon footprint due to the production of various components, including glass, rubber, steel, and plastics.
The most recent figures provided by the Indonesian Directorate General Of Climate Change Control indicate that steel and iron industries were among the top three (14 percent) emission of carbon dioxide in industrial processes and usage, followed by the cement and ammonia industries.
Steel is the primary material used in automobiles. So, the fact that more cars are produced will require more steel, which results in higher carbon emissions.
Composition of GHG Emissions by Industrial Processes and Production Use IPPU Sector. Directorate General Of Climate Change Control Author supplied
Apart from carbon emissions, The steel industry produces numerous toxic and hazardous materials as waste, including dust, sludge oil, and grease.
Do you require additional policies?
While the reduction in tax on sales of cars will benefit economic growth, the cut could be at risk of Indonesia experiencing higher carbon emissions by the end of the year. It could impede Indonesia’s efforts to cut down on their carbon dioxide emissions.
Indonesia is the only country in Asia to have set goals for its national committed contribution (NDC) to cut the carbon emission by 29% before 2030, and 41% using international assistance.