Abstract
This research aims to determine and analyse the categories of levies in the paid plastic bag policy in Indonesia, and its relevance to pollution levies. Based on analysis, this research comes to the following conclusion: the paid plastic bags policy in Indonesia cannot be categorised as a tax or charge. The main characteristics of taxes or charges are not contained in the policy of paid plastic bags, especially in terms of the legal relationship between the parties. Paying for plastic bags fits in much better with the general concept of a pollution levy. In the context of imposing a cost on consumers, the relevance of this policy to pollution-levy principles could be seen from the attainable objective, namely altering consumer behaviour through pricing. This study contributes to current global literature in the field of the use of the levy concept in the paid plastic bag policy and its relevance to pollution abatement principles.
Almost every human activity produces some waste or other discharge which is no longer used. Year after year, the amount of waste discharged is increasing along with the growth in population and economic development. In 2012, Hoornweg and Bhada-Tata reported that solid waste generated by cities around the world amounted to about 1.3 billion tonnes per year. They predicted that this volume would increase to about 2.2 billion tonnes by 2025.
Indonesia, as a developing country, is experiencing problems due to the increasing amount of waste and its management. In 2015, the total amount of waste produced by regions in Indonesia had reached 175,000 tonnes per day and was predicted to amount to 67.1 million tonnes per year by 2019 (Redaksi Geotimes, 2015). From this data, plastic waste accounted for 14 percent of the total amount of waste (Wahyuni, 2016). The negative impact of plastic waste is quite high, especially on human health and the environment, particularly because of its physical nature, as it requires hundreds or even thousands of years to decompose, causing pollution of land and water in the meantime. The alternative to land/water disposal – burning plastic waste – is not recommended because it produces air emissions that are harmful to human health.
Legal and Policy Background
Waste management in Indonesia is governed by the Waste Management Act (Law No. 18 of 2008). Rather than the prior “end-of-pipe method” or gathering, transporting and disposing to the final processing site, the law on waste management in Indonesia is based on a new more environmentally friendly paradigm, namely waste reduction and management. Waste reduction focuses on reduction, reuse and recycling (the 3Rs), while waste management covers sorting, collecting, transporting, processing and final processing. In realising this new paradigm, the central and regional governments are given the authority to establish waste management policies and strategies.
In relation to the management of plastic waste, the Indonesian Ministry of Environment and Forestry (Kementerian Lingkungan Hidup dan Kehutanan or “KLHK”) implemented a paid plastic bag policy. This policy was outlined in the KLHK Circular of the Directorate General of Waste Management, Hazardous and Toxic Waste No. S.1230/PSLB3-PS/2016 concerning the Price and Mechanism of Application of Paid Plastic Bags (KLHK Circular 1230/2016). Based on this circular, retailers may no longer provide plastic bags for free to consumers, but must charge customers who choose to use them. During the trial of this policy, the government, consumer organisations and retail associations agreed on a minimum of Rp. 200 (about US$0.015) as the price per bag (Tobing, 2016).
The policy was not affected by KLHK Circular No. 8/2016, on this topic, which attempted to formalise the charge for plastic shopping bags. The initial phase of this effort nationally ceased on 1 October 2016, owing to the weak legal basis underpinning KLHK Circular 1230/2016. To be more effective, the proposed policy should have been in the form of a ministerial regulation. Nevertheless, Aprindo (the Indonesian Retailers Association) re-implemented the policy on 1 March 2019, under the theme “a plastic bag is not free” (Petriella, 2019). This policy is no different from the 2016 policy, and will, throughout the rest of this article, be referred to as “the paid plastic bag policy”.
The purpose of a paid plastic bag policy is to reduce the amount of plastic waste in Indonesia. Members of Aprindo are reported to have used 10.95 million plastic bags per year – a condition that raised concerns at the time, in light of the government’s target of reducing the amount of plastic waste by more than 1.9 million tonnes by 2019 (Wahyuni). The implementation of the paid plastic bag policy in retail stores in Indonesia could be understood as an attempt to limit the use of plastic bags. It was expected to change people’s behaviour by changing their attitudes and awareness regarding the consumption of plastic bags.
Paid plastic bag policies are not a new concept internationally. European countries such as Denmark, Ireland and Belgium are pioneers in the application of taxes on plastic bags. Denmark has been imposing taxes on plastic bags since 1994. A number of retail stores in Denmark, especially supermarkets, impose a tax on consumers who request plastic bags to carry their groceries. Such policies are reported to have reduced the consumption of plastic bags by approximately 66 percent (Simon, 2010). The application of a levy on plastic bags was also carried out in Asia by countries such as Hong Kong and China. In both, it has had a very positive impact on reducing the use of plastic bags by consumers in retail outlets. Since its introduction in 2009, the Hong Kong government has succeeded in reducing the use of plastic bags by 85 percent, while China has seen a 66 percent decrease in the annual consumption of plastic bags (Zhu and Huen, 2009).
These experiences in Europe and in Asia (as well as the experiences in Indonesia) have been based on the use of economic instruments. One type of economic instrument often used in environmental management is the application of “pollution levies” – usually viewed as a classification within the overall body of taxes and charges. As pollution control instruments, such levies take into account the reasonable price of particular goods and actions, including their environmental cost, with the goal that producers and consumers would reduce the waste or emissions produced (OECD, 2001). In this context, the pollution levy approach leaves the decision (to either pay the pollution price or change their behaviour completely) up to producers and consumers.
In Indonesia, the relevant legislative instrument is Law No. 32 of 2009 concerning Environmental Protection and Management (UU Perlindungan dan Pengelolaan Lingkungan Hidup, hereinafter, the 2009 PPLH Law), which includes economic instruments as a type of preventive measure for controlling environmental pollution and/or damage. Such economic instruments are divided according to their nature: development, planning and economic activities; and environmental funding, i.e., economic incentives and disincentives. Taxes and charges are included among the kinds of incentives and disincentives used for environmental management. They can operate as incentives, if they encourage positive activities to improve the quality of the environment, or as disincentives, if they limit activities that may potentially pollute the environment.
Based on its purpose, the paid plastic bag policy in Indonesia could be categorised as a disincentive; however, it has not yet been specifically identified as either a tax or a charge. European countries such as Denmark, Ireland and Belgium clearly refer to their respective payments for plastic shopping bags as a tax, while Asian countries such as China and Hong Kong use the more general term “environmental levy”. There are fundamental differences between these notions which have different legal consequences.
Research Objectives
The main objectives of this research are as follows: At a normative level, in the context of the paid plastic bag policy in Indonesia to consider the differences among pollution levies – specifically, what it means to determine that a particular levy conforms more to the concept of a tax or to that of a charge. To critically analyse the relevance of the paid plastic bag policy as a pollution levy, and consider whether it is either a tax or a charge, and if not, whether it should be.
With this research the author hopes to contribute a framework or foundation with regard to the legal issues on pollution levies policy in Indonesia, enabling the country to manage the consumption and production of plastic shopping bags which have such a negative impact on the environment.
Research Materials and Methodology
Data Collection
This normative research relies on secondary data collected through library research, consisting of any relevant law and legislation, books, journals, articles, papers and other documents. Relevant laws and regulations used in this research are the Law on Environmental Protection and Management, 2009; the Law on Local Tax and User Charges, 2009; the Law on Waste Management, 2008; and the Government Regulation on Management of Household and Similar Waste, 2012.
Data Analysis
Once the data had been collected, they were edited and coded for further analysis. The analysis was used to reduce the data to a story and its interpretation (LeCompte and Schensul, 1999). Data were analysed qualitatively, i.e., selected according to the quality of the secondary data. The essence of this research was a critical review of relevant information to provide a firm grounding for the concept and to highlight the relevance of various principles and theories to the issue raised.
Result and Discussion
The Conceptual Classification of Indonesia’s Plastic Bag Levy
The paid plastic bag policy was launched by the Indonesian government on 21 February 2016, as a governmental effort to control/reduce the use/consumption of plastic bags, due to their negative impact on the environment, as described above. Charging consumers for plastic bags used in Indonesian retail outlets was viewed as a way to encourage consumers to have a clearer awareness of the actual/environmental cost of the plastic bags they had previously accepted without charge.
The price paid by consumers and the objectives to be achieved in this policy seem to be in line with the concept of “economic instruments” in taxation theory. The economic instrument is not a new concept in Indonesia and is explicitly regulated in the 2009 PPLH Law. Taxes and charges are types of economic instruments. Both of these can be used as incentives and disincentives in environmental management, with the ultimate goal of altering behaviour. Clearly such alteration was the implicit objective underlying the issueance of the paid plastic bag policy based on the KLHK Circular 1230/2016 (concerning the Price and Mechanism of the Application of Paid Plastic Bags).
The question examined here is whether the paid plastic bag policy is classified as a “tax” or a “charge” or whether it is neither, that is a separate concept within the general category “pollution levy”. From the legal perspective, the juridical consequences of taxes differ from charges. In general, this difference between taxes and charges involves the nature of the benefits received by the payer. A tax provides indirect benefits. Taxpayers do not receive direct benefits as a result of their payments. By contrast, a charge brings the desired benefit directly to the payer.
This difference is universally accepted. The 2005 World Bank report on environmental fiscal reform distinguishes the notions of taxes and charges as follows:
Taxes are compulsory payments to the government (appearing as receipts in the budget) without the return of anything specific to the taxpayer. User charges or fees are payments for specific services. Like taxes, they are compulsory, but their purpose is to recover the cost (operating or capital, or both) of providing a service. The proceeds of charges do not therefore end up in the government’s general budget; rather they end up with the service provider, whether they are in the public or private sectors. The term levy can also be used to cover taxes, fees and charges (Markandya, 2005, at 33).
From the above definition, the World Bank not only underlines the characteristics of taxes and charges, but also gives a general understanding of levies. Basically, taxes and charges may be considered within the overall, less specific concept of levies.
In general, the paid plastic bag policy is more directed towards the concept of a charge than a tax. KLHK Circular No. 1230/2016 states that plastic bags are no longer free to consumers in retail outlets; they are required to pay a minimum of Rp. 200 (including VAT) if they choose to use a plastic bag. Like a charge, this payment brings a specific benefit to the consumer, namely a bag in which to carry their purchases.
In Indonesia, two main characteristics distinguish between taxes and charges. The first is the benefit received by the payer, as described above; however, the second relates to the nature of sanctions. Regarding benefit, Sumyar (2004) states that the benefit perceived by the taxpayer is not directly addressed to the person concerned, but it is aimed at the public interest, usually realised in the form of public facilities and infrastructure, such as roads and public buildings. Meanwhile, a charge returns benefits that can be directly received by individuals, for example payment of electricity bills is more like a charge than a tax.
The second main characteristic – the nature of sanctions – is juridical in nature. The collection of tax can be enforced legally, through, for example, demand letters and confiscations. By contrast, sanctions are not needed on charges (Sumyar). The payer will simply not receive the benefit tied to the charge. For example, consumers who do not pay electricity bills will be formally warned and, if the warning letter is disregarded, the official will cut off the customer’s electricity.
In this respect as well, the paid plastic bag policy in Indonesia is more like a charge than a tax. It does not require juridical sanctions, and thus does not need to be regulated (added, adjusted or eliminated) through legislation under the Indonesian Constitution. Since the paid plastic bag policy is not governed by a law, it should not be categorised as a tax. In addition, KLHK Circular No. 1230/2016 does not include the provisions of sanctions, even against retailers that do not implement the policy. The legal basis of KLHK Circular No. 1230/2016 refers to the Law on Waste Management No. 18 of 2008, not to any law on taxation, such as the Law on General Provisions and Tax Procedures.
The basis of the paid plastic bag policy based on the second feature is more economic than that of a tax. If consumers do not want to pay the price of plastic bags, they lose the linked benefit (the use of a bag in which to carry their retail purchases).
Although, on the basis of these two criteria, the paid plastic bag policy meets the description of a charge, the analysis must go on to consider other criteria. The 2005 World Bank report defines charges with these words: “Like taxes, they are compulsory” (Markandya, at 33). That is, it defines charges as mandatory contributions to the government. This characteristic is generally thought of as inherent in the concept of charges. According to Ilyas and Burton (2004), charges are levied by the State. So, the charge is mandatory and collected by the government, including local government (see Indonesia’s Local Tax and User Charges Act, Law No. 28 of 2009 (UU Pajak Daerah dan Retribusi Daerah, hereinafter the 2009 PDRD Law)).
In charges, the government is a charge collector and the individual/entity is a payer. From a legal perspective, the relationship between the charge collector and the payer is a kind of legal bond, by which one or more parties are bound to act or refrain from acting. In the law of obligation, the parties have reciprocal rights and duties to be fulfilled. In this, it is said to be a “perfect obligation”. By contrast, taxes are a type of imperfect obligation, because only one party will receive full rights to demand performance.
As noted, the obligations attached to a charge can be found in the paid plastic bag policy; however, the legal relationship is not between the government and the consumer, it is between the retailer and the consumer. The government is an outsider that initiated the paid plastic bag policy, but is not involved in its mechanism. KLHK Circular No. 1230/2016 states that the mechanism of the paid plastic bag policy operates within a normal and usual business mechanism. The previously free plastic bags are converted into another product for sale.
The distinction applies at all governmental levels. In the 2009 PDRD Law, the term “charge” refers to services or facilities provided by the regional government. This law categorises charges into three groups: general service fees, business services and certain licences. Each of these categories has its own criteria and types, and their implementation is further regulated in regional regulations. The existence of local taxes and local charges in Indonesia is very important because they are a source of regional income. Revenue collected by the regional government from local taxes and charges goes to the regional budget and is used to support regional expenditures. The money collected must go to the State budget and be regulated in regional regulations as the implementing regulation.
Given that the paid plastic bag policy does not involve collection by the government, it is not a charge, and does not seem to be governed under the 2009 PDRD Law for three reasons related to governmental practice: First, the price paid is not collected by the local government. Legally, there are only two parties who interact with each other, namely retail outlets and consumers. Thus, the collectors are retailers, not the government. Second, the money collected is not included in the regional budget. KLHK Circular 1230/2016 makes it clear that the payment is part of the “normal business mechanism” and offers no further explanation. Therefore, it can be assumed that the money collected at retail outlets will be included in the profits received by retail entrepreneurs. This is reinforced by Aprindo’s agreement to the circular. Retailers are committed to supporting incentives for consumers, waste management and environmental management through the Corporate Social Responsibility programme. The implementation mechanism of those programmes is regulated by each retailer independently. Third, the implementation of the paid plastic bag policy is clearly based on the KLHK circular and not the regional regulations. Although the policy is based on a law, the law involved was not the Taxation Law but the Waste Management Law.
The first phase of policy implementation (in 23 cities) ended on 31 May 2016. Despite a new circular letter (KLHK Circular No. 8/2016 concerning Reduction of Plastic Waste Through the Application of Non-Free Disposable Plastic Shopping Bags, mentioned above) being applied to the second phase, the essence of the policy did not change. Although KLHK Circular No. 8/2016 covers the concept in more detail, discussing the background, objectives, scope, basis and implementation of the policy, it does not change the concept of the economic instrument used in the policy nor change any of the above factors that would make it either a tax or a charge. Similarly, although the authority of the regional government is explicitly mentioned in this circular, it is only limited to technical arrangements. The parties involved in the arrangement (the retailer and the consumer) are still the same.
In addition, the principle of revenue management specifically described in the latest circular (KLHK No. 8/2016) is that the revenue collected under the policy goes to the retailers. The government is prohibited from collecting fees – none of the proceeds from the sale of these plastic bags go into the governmental budget and they are not used to finance government expenditures as taxes are. Even in the cases of charges, a portion of the revenue can be used to cover government’s operational costs and/or to reimburse capital that has been spent to provide services and facilities (Markandya). This principle is implicitly the basis of Articles 152–154 of the 2009 PDRD Law; however, the paid plastic bag policy under KLHK Circular No. 8/2016 does not involve local governments. Thus, the paid plastic bag policy cannot be categorised as a charge.
This conclusion is also reinforced by the legal basis of the paid plastic bag policy. In KLHK Circular No. 1230/2016, the policy is based on Law No. 18 of 2008 concerning Waste Management. Likewise the second phase under KLHK Circular No. 8/2016 relied on the same legal basis, supplemented by Government Regulation No. 81 of 2012 concerning Management of Household and Similar Waste. No tax or charge-related laws and regulations are cited as legal bases of either circular. The involvement of the government in the policy is only as a maker of the policy and strategy in waste management, while the executors of this policy and the management of funds from the sale of plastic bags are left entirely to retailers.
This remained the same in 2019 in the context of Aprindo’s reimplementation of the policy. There are no specific changes in the objective and the mechanism except the legal basis of the policy. No further regulations had been issued by the Indonesian government regarding single-use plastic bags. The waste management law, policy and strategy are the only basis of the new implementation arrangement apart from an agreement among retailers. Thus, the policy is neither a tax or a charge, but is only a “pollution levy” based on the concept of a “normal business mechanism” as agreed in 2016.
The Paid Plastic Bag Policy as a Pollution Levy
The 2009 PPLH Law explicitly regulates economic instruments relating to the environment. This includes instruments relating to planning development and economic activities, as well as environmental funding, incentives and/or disincentives. As an environmental policy, it can be applied to instruments addressing the prevention of pollution and environmental damage. This is directed at cost-effectiveness, which means that it applies to any economic instrument intended to mandate or encourage a precautionary measure or to prevent pollution, because such measures are much cheaper than environmental recovery after pollution or environmental damage has occurred.
Thus, the plan of implementing a waste management measure through modification of the price regarding goods and/or services is classified as an economic instrument. But it is an economic instrument that relies on two environmental management principles: the “polluter pays principle” (PPP) and the “precautionary principle”.
The PPP states that the polluter should bear the expenses of carrying out the measures that public authorities must adopt to ensure that the environment is in an acceptable condition. In other words, the cost of such measures should be reflected in the cost of the goods and services and/or resources consumed, the production of which cause pollution. Such measures should not be accompanied by subsidies, as these would create significant distortions in international trade and investment (OECD, 1992, at 14). The PPP is inevitably a principle of advance cost internalisation. In other words, all of the social costs deemed to be impacts of production and/or consumption must be included in the price of goods and services that are produced and/or consumed. The polluter will thus bear the costs of pollution incurred in these types of production and consumption.
The precautionary principle is sometimes referred to as the “prudent” principle. This means that everyone must behave carefully, when conducting economic activities that may potentially pollute or damage the environment. Under this principle, anyone undertaking any behaviour or action which might impose a burden on the environment needs to anticipate this possibility and take measures to prevent environmental harm, even if there is not yet clear evidence that the action will certainly cause it.
The paid plastic bag policy based on the two 2016 KLHK Circulars and the 2019 agreement of Indonesian retailers can be categorised as an economic instrument. For example, it gives the retail consumers the option of waste reduction or accepting their role as a polluter who pays, by imposing a price on bags at the time of retail purchase. Although some people question the reasonableness of the price of plastic bags, the researcher assumed that the paid plastic bag policy is a step forward in applying pollution costs.
Thus, as an economic instrument, the paid plastic bag policy certainly reflects an element of the PPP by making the polluter pay, either by refusing the convenience of a single-use plastic bag or by paying the additional cost for it. Before the paid plastic bag policy was issued, plastic bags were provided free of charge by the retail outlets in Indonesia, resulting in the above-described harms to the environment. By internalising the cost of pollution into the price of plastic bags, the policy aims to change the behaviour of consumers regarding the use of single-use plastic bags. The KLHK Circulars and current retail policies, by imposing a price on bags, have selected their means of implementing the PPP.
The precautionary principle is connected to the PPP, in that the latter incorporates prudence. As such, the paid plastic bag policy incorporates the precautionary principle by giving consumers in retail outlets an awareness that they should be cautious in avoiding excessive consumption of plastic bags, which will burden the environment. The policy anticipates the risks of overconsumption, and imposes a charge on plastic bag consumption.
Thus, the application of the PPP and precautionary principle in managing the environment involves internalising the negative impact of the economic activities on cost production and consumption of goods and/or services. As such, it is regulated under Article 43(1)(d) of the 2009 PPLH Law, “Internalizing cost to the environment”, which is defined as including the cost of addressing pollution and/or environmental damage in the cost of any business and/or activity that causes such damage. The relevant regulation regarding internalising environmental costs includes “incentives” and “disincentives” among the costs internalised. In this context, an incentive constitutes an effort to persuade (monetarily or otherwise) every person or government official to act in a way that has a positive impact on natural resources and the quality of environmental functions, while a disincentive constitutes a burden (monetary or otherwise) imposed on each individual or institution to the extent that such person’s activities have negative impacts on natural resources and the quality of the environment (Environmental Protection and Management Law, 2009). Taxes, charges and environmental subsidies are clearly among the list of incentive and/or disincentive instruments.
As noted above, the paid plastic bag policy in Indonesia cannot be legislatively categorised as a tax or a charge. Its goal is to reduce plastic bag consumption by internalising the consumers’ costs of plastic bag disposal – i.e., reducing waste generation by reducing the demand and use of disposable plastic bags through the economic adjustment of requiring consumers to pay for the bags they choose to use. It is thus, primarily, a disincentive under the 2009 PPLH Law. The non-involvement of the local government in the paid plastic bag policy indicates that these levies are not local or regional revenue for the government. This conclusion does not change as a result of the most recent events in 2019 when the retail associations agreed to voluntarily implement a policy that single-use plastic bags are not free.
The Local Government Law (No. 23 of 2014) stipulates that waste management is under the authority of the district and/or city government. In KLHK Circular No. 8/2016, the local government is not involved in the selling and purchasing of the plastic bags in the retail stores. The funds raised from the the sale of plastic bags are entirely for the benefit of the retailers, who are only required to provide monthly reports to local and/or regional governments on the use of proceeds from the sale of plastic bags. In 2019, these reports were left to retailers, who are advised to be transparent in sharing this data, particularly in regard to whether there has been a decrease in demand for plastic bags in Indonesia (Purningsih, 2019).
If the paid plastic bag policy were found to be a tax or charge, it would mean more government involvement of a different type. An example is the experience of the Irish government in implementing a tax on plastic shopping bags in 2002. The Irish government imposed a tax of 0.15 euros per plastic shopping bag used by retail consumers (Convery et al., 2007). The implementation of this policy involved various levels of government including the Department of Environment, Heritage and Local Government, the Minister for Finance, the Revenue Commissioners and the Local Authorities. Support from the last three government sectors is very important, especially for the collection, administration and enforcement of the tax policy. Revenues from this tax are collected in the “Environment Fund” under the supervision of the Department of the Environment, Heritage and Local Government of Ireland. The funds collected are allocated not only to cover collection costs but also to support programmes related to environmental management (Convery et al.).
The Irish tax on plastic shopping bags is worth considering as a “best practice”. In addition to serving as a disincentive for consumers (as in the Indonesian policy), the Irish tax is also coercive, through the inclusion of provisions that can guarantee the implementation of this policy. The Ministry of Finance and the local government are more able to coerce, being directly involved in tax/charge collection and enforcement.
Indonesia’s paid plastic bag policy is, however, not yet a formal pollution tax or charge. Management of funds from the sale of plastic bags is still left to retail entrepreneurs and allows for misuse if not closely monitored. Thus, although this paid plastic bag policy is already a pollution levy, it is possible that the existing system does not give a properly strong “price signal” to consumers, and as a result, it is possible that the behaviour of consumers as regards the use of plastic shopping bags will not change significantly. The PPP and the precautionary principle are thus not well embodied in the paid plastic bag policy.
Conclusion
The price under the paid plastic bag policy is neither a “tax” nor a “charge” as governed in Indonesian taxation laws. That policy clearly does not fulfil the two main elements of a tax (required payment and juridical sanctions), but is closer to the general concept of charges, which link directly to benefits and impose sanctions that are more economically oriented. Although both taxes and charges have social benefits, those classifications must be considered in conjunction with the legal relation between the parties. In the Local Tax and User Charges Act (Law No. 28 of 2009), the term “charge” points to the relationship between payers of the charge and local government.
The government’s exclusion from implementation of the paid plastic bag policy, however, means that the policy lacks an important element of the concept of a charge. In the two KLHK circulars cited above, the duty of government was only for technical arrangement and did not include the collection and management of fees. Government involvement is even less since 2019, when the Indonesian Retailers Association reimplemented the policy.
The relevance of the paid plastic bag policy as a pollution levy is clear in its objective, namely the reduction in consumption of single-use plastic shopping bags. The policy clearly incorporates both the PPP and the precautionary principle in its attention to waste management and providing a price disincentive for consumers in deciding whether they need a plastic bag at the time of purchase. The policy clearly seeks to change the behaviour of consumers. To achieve this, however, it needs to incorporate more effective government implementation, probably by recasting the levy as a tax or charge.