Cross-Subsidy Carbon Tax to Ease Income Tax for Low Earners

The Indonesian government is evaluating a cross‑subsidy scheme that would channel carbon tax revenue to lower personal income‑tax rates for low‑ and middle‑income earners. The proposal was presented at a fiscal policy forum in late October 2025.

Carbon taxes are viewed as a key tool to curb greenhouse‑gas emissions and promote a green economy, yet similar measures abroad have sparked public protests because of higher consumer costs. By directing 20‑30% of the estimated thirty‑trillion‑rupiah annual carbon‑tax revenue to reduce income‑tax liabilities in the 5% and 15% brackets, the scheme aims to achieve social equity and lessen political resistance. The allocation is intended to provide tangible tax relief while preserving funds for environmental programs.

If implemented effectively, the mechanism could ease fiscal pressure on low‑ and middle‑income households while maintaining state revenue for climate initiatives. Accurate taxpayer data and transparent distribution are essential to ensure the subsidies reach the intended beneficiaries. The approach may also strengthen the legitimacy of Indonesia’s tax reform and accelerate the transition to a low‑carbon economy.