Economic Incentives for Recycling Industries

Economic incentives are essential for the rapid growth of recycling industries, and should steer economic activity in the direction of least environmental impact, encourage consumers to switch to cheaper eco-friendly products, and stimulate production of eco-friendly products through tax reduction (OECD, 2014). ASEAN+3 countries have adopted differing approaches to the offering of economic incentives, depending on their needs and situation.

Indonesia gives fiscal incentives, such as lowering value-added tax (VAT) from 10% to 5% for recycling businesses, but this faces a challenge due to its indirect impact on profit. As VAT will mainly be added to the selling price, to gain higher profits recycling industries will have to depend on sales volume, while demand for recycled products remains low. As a result, the scheme is not expected to transform business-as-usual (Novastria, 2019). This kind of incentive should be integrated with other aspects such as ease of doing business, ease of obtaining loans, and business development services.

Indonesia has offered other economic incentives under Government Regulation No. 46/2017 on Environmental Economic Instruments. The most popular scheme is the green sukuk, which is conceptually similar to the green bond initiated by the World Bank in 2008 to raise funds to support projects related to climate change. However, the green sukuk was established by implementing sharia (Islamic law) financial concepts. Sukuk is the plural of sakk, which means legal instrument, deed, or cheque. It is Arabic for a guarantee certificate for sharia investment (Alsaeed, 2012).

The green sukuk aims to solve global warming through renewable energy, energy efficiency, green tourism, green buildings, sustainable agriculture, disaster risk reduction, sustainable transport, waste-to-energy and waste management, and sustainable management of natural resources, in line with the World Bank’s global efforts. Government expenditure in these sectors can be monitored through a national budget tagging mechanism emphasising performance and outcome (Haryanto, 2018). Indonesia pioneered green bonds in ASEAN by issuing the US$1.25 billion green sukuk in March 2018 (Anggraini, 2018) the world’s first sovereign green sukuk.

China has conducted a similar but more advanced VAT initiative to support its recycling industries, granting favourable VAT treatment through Circular No. 115 of State Administration of Taxation in Ministry of Finance in 2011. VAT exemption has been applied since 1 August 2011 to any service related to waste and sludge treatment once certain criteria have been met.A 50% VAT refund upon collection is applied to self-produced products such as gasoline; diesel fuel; waste plastic or rubber oils; petroleum coke; carbon black; recycled pulp; aluminium powder; recycled materials for automobiles, motorcycles, household electrical appliances, pipes, and chemical fibres; and recycled plastic products made from waste plastics, waste PVC products, waste rubber products, and aluminium-plastic composite paper packaging materials (China Briefing, 2011).

China also has a recycling subsidy policy on the reuse and recycling stage of the product life cycle. The higher the government subsidy levels, the greater the recycling activity, according to simulations conducted by Chang et al. (2016) thus increasing profits for recyclers. However, the variation of subsidy levels has had no impact on manufacturing variables such as innovation, pollution cost, and profit. Therefore, the upstream side must be optimised. Market factor interventions should be considered, such as innovation ambience which attracts manufacturers to use more recycled instead of virgin materials, as well as consumer awareness of products made from recycled materials. Through interventions, the recycling subsidy policy will encourage not only reuse and recycling but also affect the entire stage of the product life cycle.

Viet Nam's recycling industry, which started as small-scale craft villages scattered around the country, refers to family-run low-tech industry with a lack of social and environmental considerations (P4G Partnering for Green Growth and the Global Goals 2030, 2019). The biggest challenge is shifting from a traditional to a sustainable method which complies with environmental regulations. The link between plastic manufacturers and recyclers remains limited, although some large companies have emerged. The government should encourage recycling industries by providing low-interest loans, incentives, and other fiscal schemes.

Recycling at the national level is mostly governed by the Viet Nam Environment Administration under the Ministry of Natural Resources and Environment (MONRE), and at the city and provincial levels by the Department of Natural Resources and Environment (DONRE). The government issued Circular No. 121/2008/TT-BTC on Guiding Incentive Mechanisms and Financial Supports for Investment in Solid Waste Management, with Article 2.5 supporting the research and development of solid waste recycling, reuse, and disposal technologies. The government has committed to support up to 30% of total funding for organisations and individuals who plan to invest in the construction of solid waste disposal facilities. Detailed guidance of the scheme can be found in Joint Circular No. 2341/2000/TTLT/BKHCNMT-BTC.

The government has also enhanced market development for recycled products by issuing Decree No. 19/2015/ND-CP on Detailing the Implementation of a Number of Articles of the Law on Environmental Protection, which encourages the procurement of recycled products. Under Article 47, heads of agencies and units using the state budget must prioritise the public procurement of products manufactured by certified recycling industries