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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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Wednesday, 09 March 11
INDONESIA HAS SET THE MARCH 2011 INDONESIAN COAL REFERENCE PRICE FOR THERMAL COAL AT US$ 122.43 PER TON
COALspot.com - Indonesia’s Ministry of Energy and Mineral Resources has set the March 2011 Indonesian Coal Reference Price for thermal c ...
Tuesday, 08 March 11
US$ 8 BILLION WORTH OF INFRASTRUCTURE PROJECTS IN PIPELINE IN INDONESIA - WOOD MACKENZIE
India’s Increasing Demand for Thermal Coal Cannot Be Satisfied Without Emerging Coal Areas in Indonesia - Wood Mackenzie
At Coa ...
Tuesday, 08 March 11
INDIA'S VEDANTA TO ACQUIRE COAL MINES IN OVERSEAS
COALspot.com - India's Vedanta group is also looking at long-term off take agreements and possible acquire of coal mines overseas, the official sai ...
Tuesday, 08 March 11
MINERS SAY VALUE-ADDED LAW WILL HURT IN THE LONG RUN - THE JAKARTA GLOBE
The Jakarta Globe reported that, Government plans to require miners to give added value to their exported commodities could end up costing the count ...
Tuesday, 08 March 11
THE PANAMAX MARKET THIS WEEK FIRMED UP - BRS
Underlining the unpredictability of the current market, rates for all dry bulk segments swung up again last week. Stronger exports out of South Amer ...
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- OPG Power Generation Pvt Ltd - India
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- Lanco Infratech Ltd - India
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- Kalimantan Lumbung Energi - Indonesia
- Directorate Of Revenue Intelligence - India
- Cement Manufacturers Association - India
- India Bulls Power Limited - India
- Metalloyd Limited - United Kingdom
- Asmin Koalindo Tuhup - Indonesia
- Minerals Council of Australia
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- Maharashtra Electricity Regulatory Commission - India
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- Dong Bac Coal Mineral Investment Coporation - Vietnam
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- Posco Energy - South Korea
- SMC Global Power, Philippines
- Indogreen Group - Indonesia
- Electricity Authority, New Zealand
- Merrill Lynch Commodities Europe
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- London Commodity Brokers - England
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- GVK Power & Infra Limited - India
- SN Aboitiz Power Inc, Philippines
- Sree Jayajothi Cements Limited - India
- Kepco SPC Power Corporation, Philippines
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- Riau Bara Harum - Indonesia
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- Commonwealth Bank - Australia
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- Filglen & Citicon Mining (HK) Ltd - Hong Kong
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- Edison Trading Spa - Italy
- Energy Development Corp, Philippines
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- Bangladesh Power Developement Board
- Toyota Tsusho Corporation, Japan
- The Treasury - Australian Government
- Orica Australia Pty. Ltd.
- Eastern Coal Council - USA
- Mercator Lines Limited - India
- Orica Mining Services - Indonesia
- Manunggal Multi Energi - Indonesia
- Bhoruka Overseas - Indonesia
- Ministry of Mines - Canada
- Sical Logistics Limited - India
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- Mercuria Energy - Indonesia
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- South Luzon Thermal Energy Corporation
- Economic Council, Georgia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Price Waterhouse Coopers - Russia
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- Star Paper Mills Limited - India
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- Standard Chartered Bank - UAE
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- Semirara Mining Corp, Philippines
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- ICICI Bank Limited - India
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- Central Java Power - Indonesia
- Antam Resourcindo - Indonesia
- Simpson Spence & Young - Indonesia
- Meenaskhi Energy Private Limited - India
- Barasentosa Lestari - Indonesia
- Oldendorff Carriers - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Attock Cement Pakistan Limited
- Krishnapatnam Port Company Ltd. - India
- Tamil Nadu electricity Board
- Petron Corporation, Philippines
- Larsen & Toubro Limited - India
- The University of Queensland
- Semirara Mining and Power Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Intertek Mineral Services - Indonesia
- Siam City Cement - Thailand
- Formosa Plastics Group - Taiwan
- Thiess Contractors Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Gujarat Sidhee Cement - India
- Jorong Barutama Greston.PT - Indonesia
- Mjunction Services Limited - India
- Jindal Steel & Power Ltd - India
- Global Business Power Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Directorate General of MIneral and Coal - Indonesia
- Globalindo Alam Lestari - Indonesia
- Africa Commodities Group - South Africa
- Videocon Industries ltd - India
- Central Electricity Authority - India
- Kideco Jaya Agung - Indonesia
- Marubeni Corporation - India
- Bahari Cakrawala Sebuku - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- LBH Netherlands Bv - Netherlands
- Samtan Co., Ltd - South Korea
- Bharathi Cement Corporation - India
- Binh Thuan Hamico - Vietnam
- Ceylon Electricity Board - Sri Lanka
- Agrawal Coal Company - India
- Billiton Holdings Pty Ltd - Australia
- Bukit Makmur.PT - Indonesia
- SMG Consultants - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Alfred C Toepfer International GmbH - Germany
- Offshore Bulk Terminal Pte Ltd, Singapore
- Uttam Galva Steels Limited - India
- GAC Shipping (India) Pvt Ltd
- Georgia Ports Authority, United States
- Coastal Gujarat Power Limited - India
- Rio Tinto Coal - Australia
- Sinarmas Energy and Mining - Indonesia
- Bukit Baiduri Energy - Indonesia
- Wood Mackenzie - Singapore
- Anglo American - United Kingdom
- McConnell Dowell - Australia
- Jaiprakash Power Ventures ltd
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- Ministry of Finance - Indonesia
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- Kaltim Prima Coal - Indonesia
- European Bulk Services B.V. - Netherlands
- Planning Commission, India
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- Gujarat Electricity Regulatory Commission - India
- Gujarat Mineral Development Corp Ltd - India
- Energy Link Ltd, New Zealand
- Pendopo Energi Batubara - Indonesia
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