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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.
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Tuesday, 01 March 11
GANGAVARAM PORT, AN INDIAN MODERN PORT CREATES RECORD
COALspot.com - Gangavaram Port, the deepest and the most modern port in India creates yet another record by discharging 65349 MT Coking Coal in 24 h ...
Monday, 28 February 11
COAL INDIA HIKES PRICES BY 12% FOR SELECT CONSUMERS - ECONOMIC TIMES
Economic Times reported that, Coal India has raised prices by an average 12% for some of its consumers from Sunday, boosting its revenue by 6,000 cr ...
Saturday, 26 February 11
CIL TO HIKE COAL PRICES BY 15 PC FROM TONIGHT - THE TIMES OF INDIA
The Times of India reported that, an Indian State-run coal producer, Coal India will raise the price of coal on an average by about 15 per cent with ...
Saturday, 26 February 11
SUPRAMAX INDEX WAS UP ABOUT 10 PERCENT THIS WEEK - VISTAAR
COALspot.com - The market started on a weak note and seemed to have lost the momentum seen the previous week. The main sectors affected were Cape an ...
Saturday, 26 February 11
PEABODY ENERGY ENTERS INTO COAL SOURCING AGREEMENT ACCESSING INDONESIAN COAL FOR EXPORT
Peabody Energy today said it has entered into an agreement with Indonesia's PT Cahaya Energi Mandiri (CEM) to source 2 million tons of coal for Asi ...
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- Jaiprakash Power Ventures ltd
- IHS Mccloskey Coal Group - USA
- Coal and Oil Company - UAE
- Anglo American - United Kingdom
- Banpu Public Company Limited - Thailand
- SMG Consultants - Indonesia
- Malabar Cements Ltd - India
- Therma Luzon, Inc, Philippines
- Africa Commodities Group - South Africa
- Central Electricity Authority - India
- Medco Energi Mining Internasional
- Krishnapatnam Port Company Ltd. - India
- White Energy Company Limited
- Ind-Barath Power Infra Limited - India
- Xindia Steels Limited - India
- Lanco Infratech Ltd - India
- TeaM Sual Corporation - Philippines
- Samtan Co., Ltd - South Korea
- Aboitiz Power Corporation - Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- OPG Power Generation Pvt Ltd - India
- Posco Energy - South Korea
- Semirara Mining Corp, Philippines
- CNBM International Corporation - China
- Planning Commission, India
- Eastern Coal Council - USA
- Coalindo Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Bangladesh Power Developement Board
- Riau Bara Harum - Indonesia
- The University of Queensland
- Carbofer General Trading SA - India
- European Bulk Services B.V. - Netherlands
- Interocean Group of Companies - India
- Madhucon Powers Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- PowerSource Philippines DevCo
- VISA Power Limited - India
- Electricity Authority, New Zealand
- Chettinad Cement Corporation Ltd - India
- Bukit Baiduri Energy - Indonesia
- GVK Power & Infra Limited - India
- Larsen & Toubro Limited - India
- Sakthi Sugars Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Uttam Galva Steels Limited - India
- Vizag Seaport Private Limited - India
- Directorate Of Revenue Intelligence - India
- Ministry of Transport, Egypt
- PTC India Limited - India
- Maheswari Brothers Coal Limited - India
- Indonesian Coal Mining Association
- Singapore Mercantile Exchange
- Economic Council, Georgia
- India Bulls Power Limited - India
- Renaissance Capital - South Africa
- Sree Jayajothi Cements Limited - India
- Orica Australia Pty. Ltd.
- Salva Resources Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- GMR Energy Limited - India
- Minerals Council of Australia
- Edison Trading Spa - Italy
- Gujarat Electricity Regulatory Commission - India
- Orica Mining Services - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Standard Chartered Bank - UAE
- Petrochimia International Co. Ltd.- Taiwan
- Bhushan Steel Limited - India
- Central Java Power - Indonesia
- Bulk Trading Sa - Switzerland
- Kapuas Tunggal Persada - Indonesia
- Eastern Energy - Thailand
- Ceylon Electricity Board - Sri Lanka
- Metalloyd Limited - United Kingdom
- Bank of Tokyo Mitsubishi UFJ Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Mintek Dendrill Indonesia
- The Treasury - Australian Government
- Directorate General of MIneral and Coal - Indonesia
- Latin American Coal - Colombia
- McConnell Dowell - Australia
- Semirara Mining and Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Globalindo Alam Lestari - Indonesia
- Kepco SPC Power Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Iligan Light & Power Inc, Philippines
- Dalmia Cement Bharat India
- SMC Global Power, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Kartika Selabumi Mining - Indonesia
- Bhatia International Limited - India
- Sarangani Energy Corporation, Philippines
- Power Finance Corporation Ltd., India
- Romanian Commodities Exchange
- Ministry of Finance - Indonesia
- Indo Tambangraya Megah - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Maharashtra Electricity Regulatory Commission - India
- Bukit Asam (Persero) Tbk - Indonesia
- Mercuria Energy - Indonesia
- Straits Asia Resources Limited - Singapore
- Thiess Contractors Indonesia
- Ambuja Cements Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Port Waratah Coal Services - Australia
- Parry Sugars Refinery, India
- Essar Steel Hazira Ltd - India
- Bharathi Cement Corporation - India
- Agrawal Coal Company - India
- Mjunction Services Limited - India
- Cement Manufacturers Association - India
- Billiton Holdings Pty Ltd - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- GN Power Mariveles Coal Plant, Philippines
- Aditya Birla Group - India
- SN Aboitiz Power Inc, Philippines
- Manunggal Multi Energi - Indonesia
- South Luzon Thermal Energy Corporation
- Sinarmas Energy and Mining - Indonesia
- Georgia Ports Authority, United States
- Jindal Steel & Power Ltd - India
- Kaltim Prima Coal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Siam City Cement - Thailand
- Timah Investasi Mineral - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- Meralco Power Generation, Philippines
- Merrill Lynch Commodities Europe
- Marubeni Corporation - India
- Kobexindo Tractors - Indoneisa
- LBH Netherlands Bv - Netherlands
- PNOC Exploration Corporation - Philippines
- Bukit Makmur.PT - Indonesia
- ICICI Bank Limited - India
- Miang Besar Coal Terminal - Indonesia
- Tamil Nadu electricity Board
- MS Steel International - UAE
- Cigading International Bulk Terminal - Indonesia
- Vedanta Resources Plc - India
- Global Green Power PLC Corporation, Philippines
- Baramulti Group, Indonesia
- Kumho Petrochemical, South Korea
- Oldendorff Carriers - Singapore
- Pendopo Energi Batubara - Indonesia
- Australian Commodity Traders Exchange
- Attock Cement Pakistan Limited
- GAC Shipping (India) Pvt Ltd
- Bhoruka Overseas - Indonesia
- International Coal Ventures Pvt Ltd - India
- Parliament of New Zealand
- Wilmar Investment Holdings
- Leighton Contractors Pty Ltd - Australia
- Borneo Indobara - Indonesia
- Simpson Spence & Young - Indonesia
- Tata Chemicals Ltd - India
- San Jose City I Power Corp, Philippines
- Meenaskhi Energy Private Limited - India
- Toyota Tsusho Corporation, Japan
- Coastal Gujarat Power Limited - India
- Trasteel International SA, Italy
- Siam City Cement PLC, Thailand
- Indika Energy - Indonesia
- Electricity Generating Authority of Thailand
- New Zealand Coal & Carbon
- Barasentosa Lestari - Indonesia
- London Commodity Brokers - England
- Commonwealth Bank - Australia
- Jorong Barutama Greston.PT - Indonesia
- Gujarat Sidhee Cement - India
- Karaikal Port Pvt Ltd - India
- Independent Power Producers Association of India
- Chamber of Mines of South Africa
- Videocon Industries ltd - India
- Rio Tinto Coal - Australia
- Petron Corporation, Philippines
- Indian Oil Corporation Limited
- Kalimantan Lumbung Energi - Indonesia
- Antam Resourcindo - Indonesia
- Sojitz Corporation - Japan
- Star Paper Mills Limited - India
- Bayan Resources Tbk. - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indian Energy Exchange, India
- Sical Logistics Limited - India
- Energy Development Corp, Philippines
- Alfred C Toepfer International GmbH - Germany
- Kohat Cement Company Ltd. - Pakistan
- Mercator Lines Limited - India
- Wood Mackenzie - Singapore
- The State Trading Corporation of India Ltd
- Makarim & Taira - Indonesia
- Ministry of Mines - Canada
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Global Coal Blending Company Limited - Australia
- Deloitte Consulting - India
- IEA Clean Coal Centre - UK
- Indogreen Group - Indonesia
- Australian Coal Association
- Savvy Resources Ltd - HongKong
- Binh Thuan Hamico - Vietnam
- CIMB Investment Bank - Malaysia
- Heidelberg Cement - Germany
- Energy Link Ltd, New Zealand
- Goldman Sachs - Singapore
- Altura Mining Limited, Indonesia
- Sindya Power Generating Company Private Ltd
- ASAPP Information Group - India
- Intertek Mineral Services - Indonesia
- Formosa Plastics Group - Taiwan
- Global Business Power Corporation, Philippines
- Thai Mozambique Logistica
- Gujarat Mineral Development Corp Ltd - India
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