Reconstructing Tax Policy for Circular Economy Implementation in Indonesia: A Soft Systems Approach

Abstract

The transition to a circular economy (CE) represents a fundamental shift from linear resource use toward regenerative and sustainable industrial systems. However, Indonesia's current tax policy framework remains fragmented and insufficiently aligned with CE goals. This study investigates the need for tax policy reconstruction to support circular economy implementation in Indonesia, employing the Soft Systems Methodology (SSM) to explore policy weaknesses and stakeholder dynamics. Findings reveal that existing fiscal instruments lack integration, coherence, and behavioural incentives to catalyse industry transformation. Drawing on literature and stakeholder mapping, the study proposes a strategic tax policy redesign—emphasizing differentiated taxation, progressive incentives for recycled products, and systemic carbon taxation. The results highlight the potential of fiscal policy as a leverage point to transition toward circularity, with broader implications for sustainable development, job creation, and environmental quality.