Indonesia’s government has ambitious dual revenue and emission reduction goals: its 2015 revenue targets are 21% higher than 2014 targets, and it aims to reduce emissions 29% by 2030. These dual goals make it a growing priority to find ways to encourage productive land use that can generate domestic revenue, while also curbing emissions and deforestation.
In a series of two studies, CPI’s analysis indicates that Indonesia has opportunities to improve its fiscal policy frameworks to meet both goals simultaneously. The first study, “A Framework for Analysis” looks at land use revenues broadly, pointing to promising opportunities to address inefficiencies. The second study, “Early Insights on Taxation in the palm oil supply chain” looks at how to incentivize higher productivity models in the palm oil sector, more specifically.
Improving Land Productivity through Fiscal Policy: A Framework for Analysis

This study points to promising opportunities to address these inefficiencies and adjust fiscal policy instruments to meet Indonesia’s revenue and land use goals. We find three specific areas of opportunity: 1) adjusting existing revenue collection instruments 2) increasing the transfer of revenues to local government and 3) earmarking more revenues to support reduced deforestation.
Improving Land Productivity through Fiscal Policy: Early Insights on Taxation in the palm oil supply chain

In a case study that looks specifically at palm oil taxation, we find that the industry contributed at least IDR 10 trillion (USD 1 billion) to national tax revenues in 2012/2013. However, the sector has a relatively low tax-to-GDP ratio of around 3.4%, confirming there is an opportunity to increase tax collection levels. The study also estimates that just 11-14% (IDR 1,103 billion/USD 106 million) of revenue from the palm oil sector was directly redistributed to local governments in 2012/2013, confirming the potential to increase and earmark revenue sharing, while paying due attention to the broader fiscal landscape.