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Monday, 03 January 11
TAXATION FOR COAL MINING COMPANIES IN INDONESIA - A TAX EXPERTS VIEW
 COALspot.com - Mrs. Sri Wahyuni Sujono, managing partner of SF Consulting has wrote an exclusive report regarding taxation for coal mining companies in Indonesia for COALspot.com subscribers.
Currently, the conduct of Coal exploration, development and production in Indonesia is regulated by:
1.The Izin Usaha Pertambangan (IUP)/Mining Business License; and
2. The Perjanjian Karya Pengusahaan Pertambangan Batubara(PKP2B)/Coal Contract of Work (CCoW).
Tax Regime for a Coal Mining Company
The IUP company is subject to prevailing Indonesian tax laws. Unlike the CCoW, the IUP regulatory regime does not specify distinct tax rules. A CCoW company taxation terms in the Contract is lex specialis– that is, the terms in the contract override the general tax laws. For example, when certain specific tax rules are set out in a Contract, these tax rules take precedence over the prevailing tax laws. Generally, the tax rules in a Contract reflect those that are in force at the time the contract were signed, although there may be some exceptions. Typically, a Contract fixes the tax rules for the duration of the contract (with the exception of second generation CCAs where they generally follow the prevailing tax regulations).
Income Tax Rate
Under the prevailing Tax Law Regulations, a company is subject to corporate income tax on its net taxable profit. Net taxable profit is calculated based on gross income minus deductible expenses. The prevailing corporate tax rate for 2010 and onward is a flat rate of 25% of net taxable profit. If a Contract stipulates a specific corporate income tax rate, the Contract company may not be entitled to 25% corporate tax.
Income
Gross income usually represents sales of mining products and any other income earned by the mining company.
General Expenses
In general, deductible expenses are expenditures incurred to generate, maintain and collect taxable income and generally include an amount paid or accrued for all expenditures attributable to the company’s operations in a year which typically have a useful life of less than one year. Certain expenditures may not be tax deductible under the prevailing Income Tax law, e.g. donations and benefits-in-kind provided to employees. Some types of benefits-in-kind provided at the mining site may be deductible if the mine is located in a remote area (which is usually the case) and an approval from the DGT is obtained.
Exploration and Development Expenses
Exploration and development expenses may include camp construction, drilling, access road, project communication facilities, etc. On-site exploration expenses are generally deductible in the year the expenses are incurred provided the expenses meet the general deductibility criteria required. Exploration and mine development expenses should generally be capitalized and amortized upon spending rather than production.
Depreciation of Fixed Assets
Fixed assets are categorized into four categories, depending on the nature of the asset and its expected useful life. The rate at which the asset can be depreciated will depend upon the category of the asset. Assets are generally depreciated over 4, 8, 16 or 20 years and taxpayers may apply a diminishing balance or straight line approach to depreciation.
Amortization of Intangible Assets
Intangible assets may include pre-operating costs, patents, rights, licenses, etc. Costs incurred in the acquisition of mining rights with a beneficial life of more than one year should be amortized based on a production unit method, not exceeding 20% per annum.
Tax Losses Carried Forward
Tax losses can be carried forward for up to five years under the Tax Law and are utilized on a first-in-first-out basis. Tax losses cannot be carried back.
Reclamation Reserve
For accounting purposes, a mining company is usually required to maintain a reclamation reserve for environmental management and reclamation work during the contract period and at the end of the life of the mine. The reclamation reserve amount should be tax deductible provided that it is calculated in accordance with the prevailing energy/mineral resources sector laws/regulations. If the actual cost exceeds the reserve, the balance is generally tax deductible.
VAT
Under VAT Law No. 42/2009, coal is not subject to VAT. As a consequence, the input VAT paid to the company’s suppliers are not creditable. Some Contracts may adopt a VAT regime different than the prevailing VAT regulations. For example, there may be provision that Input VAT may be creditable/refundable despite the fact that the coal being produced is not subject to VAT. During the pre-production stage of the Contract, the company shall not have any Output VAT due to there being no delivery of mining product at that point. Therefore, VAT overpayment is likely as the company should pay its Input VAT to vendors for purchases of taxable goods/services. Some Contract companies should collect and pay VAT charged by its vendors (i.e. Output VAT) directly to the State Treasury (act as a VAT collector) as required by the relevant Contract.
Withholding Tax
The Contract company is obliged to withhold income tax from payments of dividends, interest, royalties and most types of services. The Withholding tax rate will depend on the type of service and whether the service provider is a resident or non-resident that stipulated in the tax rules Contract. The general withholding tax rate for services is 2%. The Withholding tax on dividends, interest, royalty paid to Indonesia tax resident is at 15% while for non-resident is set at 20%, though this rate is reduced by most of Indonesia’s double tax avoidance agreements. Some Contracts may provide a reduced Withholding tax rate into nil or 7.5%.
OTHER TAXES
Royalties
Royalties are payable quarterly to the Government based on the actual volume of production according to details set out in the IUP/CCoW. The royalty is tax deductible.
Land and Building Tax
The company is required to pay land and building tax as set out in the IUP/CCoW. Dead rent is an annual charge based on the number of hectares in the Mining Area. The land and building taxes are deductible for income tax.
To download this report click here.
Writer’s Profile :
Mrs. Sri Wahyuni Sujono, graduated with a Business Administration degree from the University of Wisconsin-Madison, USA. She is a certified Tax Attorney, Tax Consultant and holds a Brevet C – the highest working license qualification, and is the managing partner of SF Consulting. Sri also has expertise outside tax consultancy; she is a Chartered Financial Consultant (ChFC) and a qualified lawyer, giving a more holistic outlook and approach to her services.
Sri has had over fifteen years of experience of tax consulting with Arthur Andersen and Ernst and Young Indonesia; three years of which she was a Tax and Business Partner. She is the Vice Chairman of the Taxation Committee at the Indonesian Chamber of Commerce (KADIN), the Head of Foreign Affairs in the Indonesian Tax Consultant Association (IKPI) and sits in the Board of Experts in the Indonesian Chinese Association (INTI).
Disclaimer: This report has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this report without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this report, and, to extent permitted by law. SF Consulting and COALspot.com, its directors, members, employees, agents do not accept or assume any liability, responsibility or duty of care of any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this report or for any decision based on it.
If you believe an article violates your rights or the rights of others, please contact us.
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- Commonwealth Bank - Australia
- ICICI Bank Limited - India
- Medco Energi Mining Internasional
- Australian Commodity Traders Exchange
- Riau Bara Harum - Indonesia
- Sojitz Corporation - Japan
- Vizag Seaport Private Limited - India
- Altura Mining Limited, Indonesia
- Salva Resources Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Star Paper Mills Limited - India
- Barasentosa Lestari - Indonesia
- Global Business Power Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Krishnapatnam Port Company Ltd. - India
- Port Waratah Coal Services - Australia
- Iligan Light & Power Inc, Philippines
- Kaltim Prima Coal - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- McConnell Dowell - Australia
- CIMB Investment Bank - Malaysia
- Bahari Cakrawala Sebuku - Indonesia
- Heidelberg Cement - Germany
- Indian Energy Exchange, India
- Alfred C Toepfer International GmbH - Germany
- Billiton Holdings Pty Ltd - Australia
- SMC Global Power, Philippines
- Anglo American - United Kingdom
- Latin American Coal - Colombia
- Energy Link Ltd, New Zealand
- Cigading International Bulk Terminal - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Orica Australia Pty. Ltd.
- Holcim Trading Pte Ltd - Singapore
- OPG Power Generation Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Central Electricity Authority - India
- Rio Tinto Coal - Australia
- Mintek Dendrill Indonesia
- Formosa Plastics Group - Taiwan
- Sree Jayajothi Cements Limited - India
- PNOC Exploration Corporation - Philippines
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Mines - Canada
- LBH Netherlands Bv - Netherlands
- Semirara Mining and Power Corporation, Philippines
- Ministry of Finance - Indonesia
- Gujarat Sidhee Cement - India
- Chamber of Mines of South Africa
- Bukit Baiduri Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Kideco Jaya Agung - Indonesia
- Aboitiz Power Corporation - Philippines
- Indian Oil Corporation Limited
- Planning Commission, India
- Bhushan Steel Limited - India
- Meenaskhi Energy Private Limited - India
- Cement Manufacturers Association - India
- Coalindo Energy - Indonesia
- Simpson Spence & Young - Indonesia
- Africa Commodities Group - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sical Logistics Limited - India
- Thai Mozambique Logistica
- PowerSource Philippines DevCo
- Vedanta Resources Plc - India
- TNB Fuel Sdn Bhd - Malaysia
- Renaissance Capital - South Africa
- Attock Cement Pakistan Limited
- Central Java Power - Indonesia
- Posco Energy - South Korea
- AsiaOL BioFuels Corp., Philippines
- ASAPP Information Group - India
- Independent Power Producers Association of India
- Indika Energy - Indonesia
- Xindia Steels Limited - India
- Semirara Mining Corp, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Merrill Lynch Commodities Europe
- Savvy Resources Ltd - HongKong
- Parry Sugars Refinery, India
- Miang Besar Coal Terminal - Indonesia
- Siam City Cement - Thailand
- Globalindo Alam Lestari - Indonesia
- Australian Coal Association
- Indogreen Group - Indonesia
- Lanco Infratech Ltd - India
- Global Coal Blending Company Limited - Australia
- Borneo Indobara - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Malabar Cements Ltd - India
- Indonesian Coal Mining Association
- White Energy Company Limited
- Standard Chartered Bank - UAE
- Deloitte Consulting - India
- Wilmar Investment Holdings
- Ministry of Transport, Egypt
- Bukit Asam (Persero) Tbk - Indonesia
- Leighton Contractors Pty Ltd - Australia
- European Bulk Services B.V. - Netherlands
- Essar Steel Hazira Ltd - India
- Economic Council, Georgia
- Thiess Contractors Indonesia
- Banpu Public Company Limited - Thailand
- Trasteel International SA, Italy
- The University of Queensland
- Meralco Power Generation, Philippines
- Pendopo Energi Batubara - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Mercuria Energy - Indonesia
- Coal and Oil Company - UAE
- Bukit Makmur.PT - Indonesia
- Baramulti Group, Indonesia
- Kumho Petrochemical, South Korea
- Therma Luzon, Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- Electricity Generating Authority of Thailand
- Eastern Coal Council - USA
- Goldman Sachs - Singapore
- Karaikal Port Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Maheswari Brothers Coal Limited - India
- SN Aboitiz Power Inc, Philippines
- Interocean Group of Companies - India
- SMG Consultants - Indonesia
- Kepco SPC Power Corporation, Philippines
- Power Finance Corporation Ltd., India
- Uttam Galva Steels Limited - India
- Electricity Authority, New Zealand
- The State Trading Corporation of India Ltd
- London Commodity Brokers - England
- IHS Mccloskey Coal Group - USA
- GAC Shipping (India) Pvt Ltd
- South Luzon Thermal Energy Corporation
- Tamil Nadu electricity Board
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Orica Mining Services - Indonesia
- Edison Trading Spa - Italy
- Vijayanagar Sugar Pvt Ltd - India
- Eastern Energy - Thailand
- San Jose City I Power Corp, Philippines
- New Zealand Coal & Carbon
- Wood Mackenzie - Singapore
- Jindal Steel & Power Ltd - India
- Petron Corporation, Philippines
- Singapore Mercantile Exchange
- Mercator Lines Limited - India
- Binh Thuan Hamico - Vietnam
- Jaiprakash Power Ventures ltd
- Kohat Cement Company Ltd. - Pakistan
- Bhoruka Overseas - Indonesia
- Bharathi Cement Corporation - India
- Ceylon Electricity Board - Sri Lanka
- Marubeni Corporation - India
- Grasim Industreis Ltd - India
- Videocon Industries ltd - India
- India Bulls Power Limited - India
- Georgia Ports Authority, United States
- Madhucon Powers Ltd - India
- Siam City Cement PLC, Thailand
- GVK Power & Infra Limited - India
- Rashtriya Ispat Nigam Limited - India
- Global Green Power PLC Corporation, Philippines
- Bhatia International Limited - India
- Sarangani Energy Corporation, Philippines
- Samtan Co., Ltd - South Korea
- PTC India Limited - India
- Directorate Of Revenue Intelligence - India
- Price Waterhouse Coopers - Russia
- Sinarmas Energy and Mining - Indonesia
- Makarim & Taira - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Parliament of New Zealand
- Aditya Birla Group - India
- Antam Resourcindo - Indonesia
- GMR Energy Limited - India
- Intertek Mineral Services - Indonesia
- Carbofer General Trading SA - India
- TeaM Sual Corporation - Philippines
- Sindya Power Generating Company Private Ltd
- Directorate General of MIneral and Coal - Indonesia
- VISA Power Limited - India
- Dalmia Cement Bharat India
- Romanian Commodities Exchange
- Indo Tambangraya Megah - Indonesia
- Minerals Council of Australia
- Sakthi Sugars Limited - India
- The Treasury - Australian Government
- Bayan Resources Tbk. - Indonesia
- Larsen & Toubro Limited - India
- Chettinad Cement Corporation Ltd - India
- Kobexindo Tractors - Indoneisa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- MS Steel International - UAE
- PetroVietnam Power Coal Import and Supply Company
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Karbindo Abesyapradhi - Indoneisa
- Coastal Gujarat Power Limited - India
- Ind-Barath Power Infra Limited - India
- Bulk Trading Sa - Switzerland
- Bangladesh Power Developement Board
- CNBM International Corporation - China
- Kartika Selabumi Mining - Indonesia
- Ambuja Cements Ltd - India
- Energy Development Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- Mjunction Services Limited - India
- Kapuas Tunggal Persada - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Agrawal Coal Company - India
- Toyota Tsusho Corporation, Japan
- Straits Asia Resources Limited - Singapore
- IEA Clean Coal Centre - UK
- Tata Chemicals Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
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