Bridging the Gap: Local Tax Regulations and the Future of Green Tax in Indonesia

Indonesia again ranks among the top three countries vulnerable to the impacts of climate shocks. The intensity of the risk from this phenomenon is expected to continue increasing if a change in societal behavior does not accompany it. Referring to the Environmental Protection Management Law, one of the steps that can be taken to regulate such behavior is through economic instruments, such as a green tax. The green tax will be ineffective without a coherent regulatory framework and stakeholder political will. This study analyzes the alignment of green tax regulations at the regional level and the gaps in their implementation in Indonesia. The study ultimately contributes to current research on tax policy and environmental governance by providing practical insights for policymakers aiming to improve the environmental implications of local taxation. This study uses a qualitative approach with data collection techniques in the form of field studies, including in-depth interviews and literature studies. The locus of this research is the DKI Jakarta and West Java Provinces, focusing on two types of local taxes, namely the Motor Vehicle Tax (hereafter referred to as PKB) and the Motor Vehicle Fuel Tax (hereafter referred to as PBBKB). The research results indicate that the regulation of green taxes on PKB and PBBKB is generally aligned. However, it is important to note that neither tax base fully accounts for the overall negative externalities. The study also found problems with how PKB and PBBKB are implemented regarding a green tax. These problems include not putting the best rates in place, being transparent about the money spent, and local governments not knowing how to use this green tax. This research recommends that the government optimize the use of local taxes with the essence of existing green tax, restructure the types of green tax that do not yet include environmental costs, and ensure that local spending derived from green tax has been allocated for environmental improvement.