Indonesian audit finds taxes unpaid on 22 million acres of oil palm plantations

According to Luhut Pandjaitan, the chief minister in charge of investments, including the palm oil industry, the government arrived at that figure after he had instructed the nation’s audit agency, BPKP, to audit all palm oil companies operating in the country.

The audit aimed to scrutinize all aspects of palm oil companies, including their permits, production and concession size.

The audit identified 20.4 million hectares (50.4 million acres) of palm oil permits in the country with 16.8 million hectares (41.5 million acres) of them being planted.

Of these active plantations, taxes were paid on only 7.3 million hectares (18 million acres), Luhut said.

Therefore, more than 9 million hectares of concession holders have shirked their obligations to pay taxes, he added.

“Now we’re chasing [these companies to pay taxes],” Luhut said as quoted by online media Kumparan.

He said he had reported this finding to the Ministry of Finance as well as President Joko Widodo.

Achmad Surambo, executive director of palm oil industry watchdog group Sawit Watch, said the findings reflect the state of Indonesia’s palm oil industry, which is riddled with transparency and accountability issues.

The root of the problems is in the very first stage of the industry, which is permitting, he said.

Since the country doesn’t have a system to make sure there’s no corruption and irregularities in the permit issuance process, companies could operate with shoddy permits or even without licenses. This results in differences in plantation data among government agencies, which creates a loophole that companies can exploit to avoid paying taxes, Achmad said.

Grita Anindarini, program director at the Indonesian Center for Environmental Law (ICEL), said before the government takes any action against the concession holders, it needs to clarify the data first.

This is so that the government knows whether these companies are in the process of paying their taxes or they refused to pay taxes at all.

Achmad also pointed out that the size of the plantations for which taxes aren’t paid is significant as it makes up more than half of the concessions that have been planted.

“The amount of unpaid tax must be astronomical,” he told Mongabay. “This is an issue of transparency and accountability because these companies [that don’t pay taxes] are operating on lands owned by the state, not their private assets. While the government has issued licenses for these companies to operate on the concessions, or HGU [business permit], but the public have to know about their tax payment.”

Luhut said the government would deal with these unruly concession holders with a military-like approach by imposing penalties instead of dragging the companies to court.

“I told the president to not bring [these cases] to legal, but use penalties instead because [they] violated rules,” he said. “So they [palm oil companies] get penalties, whose amount will be determined by the Ministry of Environment and Forestry.”

Luhut said he’d rather not go through legal means to handle the issue because it would take too long.

“So in the military, there’s this notion of simplicity in launching an attack. That’s what I hold onto because I’m a soldier,” said Luhut, who is a retired four-star Army general.

Failure to pay the fines would result in the government taking over the plantations, he said.

Achmad said the government should’ve taken legal actions against the plantation owners who don’t pay taxes because Indonesia is a country based on law.

“Everything has to be based on law. That’s the consequence,” he said. “If Luhut wanted to impose penalties, then make a regulation and have the president pass [the regulation].”

Grita of ICEL said that what’s important is not only for the companies to pay taxes, but for the government to prosecute any companies that violated the laws by polluting the environment and robbing local communities of their rights.

“Regardless of whether these companies have paid taxes or not, they need to be prosecuted for their environmental and human rights violations,” she told Mongabay.

The Ministry of Finance’s tax directorate-general is launching an investigation into the matter, said the tax office’s spokeswoman, Dwi Astuti.

She said the tax office would first synchronize their data with Luhut’s data because there could be a difference in the size of concessions that should pay tax to the state.

Achmad said sorting out the differences in data of plantations among government agencies is the first thing the government has to do so that it’s clear which companies don’t pay taxes and thus should be punished.

While doing so, it’s important for the government to freeze the issuance of new permits, he added.

This is because issuing new permits without fixing the loopholes in the permit issuance and tax collection systems would only exacerbate the problems, Achmad said.

“It’s proven that issues in the permit issuance process haven’t been solved yet. Through the findings [of nonpayment], the government indirectly admitted that there’s still lots of work to be done,” he said.

This is why the government should’ve renewed its palm oil moratorium policy, Achmad said.

The moratorium was imposed in 2018, ostensibly to allow the industry to address the problems of corruption, deforestation, land conflicts and labor abuses long associated with palm oil. It expired in 2021, and although the government had the option of renewing it, it chose not to do so.

“The government was already on track at that time [with the moratorium], but the problems hadn’t been solved yet,” Achmad said.

The end of the moratorium means the government can once again issue new permits for plantation companies. This would make it more difficult for the government to address the root causes of the problems in the industry, Achmad said.

“Without [a freeze on new permits], the industry will always be plagued with never-ending issues,” he said.

Eddy Martono Rustamadji, the chairman of the country’s main palm oil business association, GAPKI, said it’s unlikely for plantation companies in Indonesia to not pay taxes since it’s hard to avoid paying taxes.

Therefore, he called on Luhut to explain in more detail about the plantation owners who don’t pay taxes.

“It needs to be made more clear on who [are not paying taxes],” Eddy was quoted by CNN Indonesia. “In the case of companies, it seems very difficult [for them] to avoid paying taxes and it’s very easy to look [for them] if they indeed don’t pay taxes.”

He said he believed all GAPKI members had paid taxes in accordance with the law.

This is because GAPKI members had been certified with the country’s palm oil sustainability scheme, ISPO. As of 2022, 80% of GAPKI members were ISPO certified.

Eddy pointed out that paying taxes is one of the requirements for ISPO certification.

Achmad said it’s actually possible to avoid paying taxes since the industry is rife with corruption.

He cited the case of palm oil company Duta Palma group owned by Indonesian billionaire Surya Darmadi.

In February, Surya was found guilty of bribing officials in Sumatra to allow his companies to grow oil palm trees on land previously declared as natural forest and on land that his companies did not have proper permits to cultivate.

Since his companies didn’t have the proper permits to operate on forest areas, they didn’t have to pay certain types of tax. Therefore, the Jakarta Anti-Corruption Court ordered Surya to pay 2.2 trillion rupiah (about $147 million) for inflicting losses from potential taxes and other income that the state could have received from plantation companies with proper permits.

The judges also ordered Surya to pay an additional 39.7 trillion rupiah ($2.6 billion) for losses incurred by the state, making it Indonesia’s costliest corruption case.

“Even a company as high-profile as Duta Palma still doesn’t pay taxes since it didn’t have proper permits,” Achmad said.

The findings deal a further blow to the reputation of Indonesia’s palm oil industry, according to Achmad.

This could make it more difficult for Indonesia to export its palm oil to European Union countries, which recently adopted a regulation that bans the trade of commodities from deforestation and illegal sources.

Agriculture is one of the largest drivers of deforestation globally. And deforestation is responsible for about 10% of global greenhouse gas emissions that drive climate change.

The landmark law aims to tackle the EU’s contribution to this by eliminating deforestation from the supply chains of a range of everyday items sold in Europe.

The law, officially called the European Deforestation-Free Regulation, targets cattle, cocoa, coffee, palm oil, rubber, soy and wood as well as commodities that have been fed by or made using those products, such as leather, chocolate, printed paper and furniture.

Once in effect, the legislation will classify exporting countries based on their deforestation risk. Low-risk countries will have a simpler due diligence procedure while higher-risk countries will have to go through more rigorous checks. The checks will make use of geolocation coordinates, satellite monitoring tools and DNA analysis that can trace product origins.

There’s a concern that if Indonesia is labelled as a high-risk country, then it’ll be more difficult for palm oil producers in the country to export their goods to the EU.

This might very well happen if the government doesn’t address the issue of tax avoidance, Achmad said.

“The EU wants everything to be legal, which means there couldn’t be non-taxpayers [exporting their goods to the EU],” he said. “With these findings, Indonesia might be categorized as a high-risk country.”

Tags: Companies, Plantations, corruption, Indonesia, Production, taxes, palm oil