Improving Land Productivity through Fiscal Policy: Early Insights on Taxation in the palm oil supply chain

The report finds that Indonesia's current tax system does not incentivize sustainable land use in the palm oil industry, characterized by low tax-to-GDP ratios and minimal revenue redistribution to local governments. It proposes six fiscal reforms, including increasing land taxes and tying revenue sharing to sustainability indicators, to reduce deforestation and improve land productivity.

• The Indonesian national tax system currently fails to incentivize sustainable land use models within the palm oil industry. Low land costs and low tax burdens, supported by various corporate income tax and Value Added Tax (VAT) incentives, likely encourage the expansion of plantations over the adoption of intensive, high-productivity models that would reduce land take.
• The palm oil industry's contribution to national tax revenues is estimated at IDR 7,896 – 10,014 billion (USD 0.8 – 1 billion) for 2012/2013. This revenue is heavily dominated by export taxes, which account for 64% of the total, followed by land and buildings tax (15%) and income tax (15%).
• There is a significant disparity in the tax-to-GDP ratio for the oil palm plantation sector compared to other Indonesian sectors. The plantation sector's ratio is approximately 3.4%, whereas the total national tax-to-GDP ratio was 12.3% in 2012, and other sectors like manufacturing, electricity, and gas are around 13%.
• Revenue redistribution to local governments is very low, with only 11-14% (approximately USD 106 million) of palm oil tax revenues redistributed in 2012/2013. This lack of redistribution may create an indirect incentive for local governments to license more land to increase their own revenue collection through fees and land taxes.
• The report identifies six opportunities for fiscal reform to encourage sustainability: increasing land tax rates to discourage expansion; taxing production area instead of volume/profit to incentivize productivity; linking tax breaks to sustainability criteria; increasing revenue distribution to local governments; tying redistribution to sustainability performance indicators; and addressing unofficial payments in the informal sector.
• Unofficial payments in the informal sector are a significant issue, with some reports suggesting they can reach as high as 20% of total costs for oil palm plantations in certain regions, potentially outweighing official taxes and fees.
• Export taxes are designed to be progressive and incentivize downstream processing by taxing less processed products at higher rates. However, production remains predominantly upstream, suggesting these incentives have not yet significantly shifted the industry's structure.

APA

Falconer, A., Mafira, T., & Sutiyono, G. (2015). Improving Land Productivity through Fiscal Policy: Early Insights on Taxation in the palm oil supply chain. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2015/12/Full-Report-English-Early-Insights-on-Taxation-in-the-Palm-Oil-Supply-Chain.pdf

Chicago

Falconer, Angela, Tiza Mafira, and Guntur Sutiyono. Improving Land Productivity through Fiscal Policy: Early Insights on Taxation in the palm oil supply chain. Climate Policy Initiative, 2015. https://www.climatepolicyinitiative.org/wp-content/uploads/2015/12/Full-Report-English-Early-Insights-on-Taxation-in-the-Palm-Oil-Supply-Chain.pdf.

Wikipedia

{{cite report |last1=Falconer |first1=Angela |last2=Mafira |first2=Tiza |last3=Sutiyono |first3=Guntur |title=Improving Land Productivity through Fiscal Policy: Early Insights on Taxation in the palm oil supply chain |publisher=Climate Policy Initiative |date=December 2015 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2015/12/Full-Report-English-Early-Insights-on-Taxation-in-the-Palm-Oil-Supply-Chain.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{falconer2015improving, author = {Falconer, Angela and Mafira, Tiza and Sutiyono, Guntur}, title = {{Improving Land Productivity through Fiscal Policy: Early Insights on Taxation in the palm oil supply chain}}, institution = {Climate Policy Initiative}, year = {2015}, month = dec, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2015/12/Full-Report-English-Early-Insights-on-Taxation-in-the-Palm-Oil-Supply-Chain.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }