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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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Saturday, 15 January 11
SUPRAMAX VESSELS FIXED AROUND $ 8K FOR TRIP VIA INDONESIA TO INDIA - VISTAAR
COALspot.com - The BDI continues to drop and has touched below 1,500 points with the cape index severely affected with the index touching 1,595 poin ...
Saturday, 15 January 11
MAKE SACRIFICES TO SAVE PLN, INDONESIA GOVT BEGS MINERS - THE JAKARTA GLOBE
The Jakarta Globe reported that, Darwin Zahedi Saleh, Indonesia's minister of energy and mineral resources, on Friday appealed to local coal compan ...
Saturday, 15 January 11
RISING PRICES, GOVERNMENT DECREE LEAVE PLN AT LOGGERHEADS WITH COAL FIRMS - THE JAKARTA GLOBE
The Jakarta Globe reported that, As coal prices continue to increase, state utility Perusahaan Listrik Negara faces problems in securing enough coal ...
Thursday, 13 January 11
SURGING COAL PRICES UNDERMINE PLN'S EFFICIENCY PROGRAM - THE JAKARTA POST
The Jakarta Post reported that, The soaring global coal prices are undermining state electricity company PT PLN's pledge to improve its operational ...
Thursday, 13 January 11
SPML INFRA TO DOUBLE INDONESIA COAL MINE OUTPUT IN TWO YEARS - DNA INDIA
DNA India reported that, Kolkata-based infrastructure company SPML Infra, formerly Subhash Projects & Marketing Ltd, will in two years nearly do ...
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- The University of Queensland
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- Australian Coal Association
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- Eastern Coal Council - USA
- Alfred C Toepfer International GmbH - Germany
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- Leighton Contractors Pty Ltd - Australia
- Madhucon Powers Ltd - India
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- Mintek Dendrill Indonesia
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- Economic Council, Georgia
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- Renaissance Capital - South Africa
- Karbindo Abesyapradhi - Indoneisa
- Vizag Seaport Private Limited - India
- Standard Chartered Bank - UAE
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- Ministry of Mines - Canada
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- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Intertek Mineral Services - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- SMC Global Power, Philippines
- Semirara Mining Corp, Philippines
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- Savvy Resources Ltd - HongKong
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- Minerals Council of Australia
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- Formosa Plastics Group - Taiwan
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- Semirara Mining and Power Corporation, Philippines
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- Romanian Commodities Exchange
- Kumho Petrochemical, South Korea
- Maheswari Brothers Coal Limited - India
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- European Bulk Services B.V. - Netherlands
- Larsen & Toubro Limited - India
- PNOC Exploration Corporation - Philippines
- Samtan Co., Ltd - South Korea
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- VISA Power Limited - India
- Bayan Resources Tbk. - Indonesia
- Metalloyd Limited - United Kingdom
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- Posco Energy - South Korea
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- Rashtriya Ispat Nigam Limited - India
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- Timah Investasi Mineral - Indoneisa
- Siam City Cement PLC, Thailand
- Australian Commodity Traders Exchange
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- Ind-Barath Power Infra Limited - India
- GMR Energy Limited - India
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- Indonesian Coal Mining Association
- Neyveli Lignite Corporation Ltd, - India
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- Karaikal Port Pvt Ltd - India
- Sakthi Sugars Limited - India
- Cement Manufacturers Association - India
- White Energy Company Limited
- Price Waterhouse Coopers - Russia
- Chamber of Mines of South Africa
- Trasteel International SA, Italy
- Essar Steel Hazira Ltd - India
- Bharathi Cement Corporation - India
- Aditya Birla Group - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Georgia Ports Authority, United States
- Gujarat Mineral Development Corp Ltd - India
- Global Business Power Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Medco Energi Mining Internasional
- Independent Power Producers Association of India
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- Sindya Power Generating Company Private Ltd
- Dalmia Cement Bharat India
- Heidelberg Cement - Germany
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Merrill Lynch Commodities Europe
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- Globalindo Alam Lestari - Indonesia
- Edison Trading Spa - Italy
- SN Aboitiz Power Inc, Philippines
- Jaiprakash Power Ventures ltd
- Sical Logistics Limited - India
- Africa Commodities Group - South Africa
- Coal and Oil Company - UAE
- Attock Cement Pakistan Limited
- Agrawal Coal Company - India
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- Electricity Generating Authority of Thailand
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- PetroVietnam Power Coal Import and Supply Company
- Meenaskhi Energy Private Limited - India
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- Directorate General of MIneral and Coal - Indonesia
- Orica Australia Pty. Ltd.
- Baramulti Group, Indonesia
- International Coal Ventures Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- GAC Shipping (India) Pvt Ltd
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- Bhushan Steel Limited - India
- SMG Consultants - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- London Commodity Brokers - England
- Indogreen Group - Indonesia
- IHS Mccloskey Coal Group - USA
- Singapore Mercantile Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- McConnell Dowell - Australia
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- Global Green Power PLC Corporation, Philippines
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- Kaltim Prima Coal - Indonesia
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- Bulk Trading Sa - Switzerland
- Energy Link Ltd, New Zealand
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