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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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Friday, 07 January 11
SRI LANKA NEW PORT TO OFFER SHIP FUEL IN MAY - LBO
LOB reported that, The Sri Lanka Ports Authority (SLPA) plans to start bunkering or ship fuel operations at a new port in southern Hambantota in May ...
Friday, 07 January 11
DRY BULK MARKET ON A FREEFALL, AS THE NEW YEAR EARLY DAYS DONT BRING MANY CHEERS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market is facing its worst slump in more than two years, falling by 4.75% yesterday to reach 1,544 points, on top of an additional 4.2% ...
Thursday, 06 January 11
OVERSEAS & GENERAL SIGNS AGREEMENT TO EXPAND FOOTPRINT ON COAL LEASE IN INDONESIA - PROACTIVE INVESTORS
Proactive Investors reported that, Overseas & General (ASX: OGL) has entered into a joint operating agreement on the Jambi Coal Lease in Sumatra ...
Thursday, 06 January 11
BANPU EXPECTS ROSY 2011 AS COAL PRICES SKYROCKET - BANGKOK POST
Bangkok Post reported that, Banpu Plc, Asean's largest coal miner, expects minimal impact from the production stoppage at its Daning mine in China ...
Thursday, 06 January 11
COKING COAL CONTRACT PRICE MAY RISE 33% ON AUSTRALIAN FLOODS - BLOOMBERG
Bloomberg reported that, Steelmakers in Asia may be forced to pay as much as 33 percent more for hard coking coal after the worst floods in 50 years ...
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- Minerals Council of Australia
- Sojitz Corporation - Japan
- India Bulls Power Limited - India
- Mjunction Services Limited - India
- Agrawal Coal Company - India
- ASAPP Information Group - India
- Pipit Mutiara Jaya. PT, Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Binh Thuan Hamico - Vietnam
- Holcim Trading Pte Ltd - Singapore
- Coastal Gujarat Power Limited - India
- Gujarat Electricity Regulatory Commission - India
- Power Finance Corporation Ltd., India
- Alfred C Toepfer International GmbH - Germany
- Aditya Birla Group - India
- Renaissance Capital - South Africa
- Dalmia Cement Bharat India
- Maheswari Brothers Coal Limited - India
- Eastern Coal Council - USA
- Edison Trading Spa - Italy
- Semirara Mining and Power Corporation, Philippines
- Sical Logistics Limited - India
- The Treasury - Australian Government
- Neyveli Lignite Corporation Ltd, - India
- Directorate General of MIneral and Coal - Indonesia
- Straits Asia Resources Limited - Singapore
- The University of Queensland
- Indika Energy - Indonesia
- Wood Mackenzie - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SMG Consultants - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Karaikal Port Pvt Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Riau Bara Harum - Indonesia
- Sree Jayajothi Cements Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Siam City Cement - Thailand
- Kalimantan Lumbung Energi - Indonesia
- TeaM Sual Corporation - Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PetroVietnam Power Coal Import and Supply Company
- Ministry of Transport, Egypt
- Australian Coal Association
- Maharashtra Electricity Regulatory Commission - India
- Xindia Steels Limited - India
- Kepco SPC Power Corporation, Philippines
- Mercator Lines Limited - India
- Star Paper Mills Limited - India
- Cigading International Bulk Terminal - Indonesia
- Parry Sugars Refinery, India
- Singapore Mercantile Exchange
- Price Waterhouse Coopers - Russia
- Jaiprakash Power Ventures ltd
- International Coal Ventures Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Oldendorff Carriers - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Eastern Energy - Thailand
- CNBM International Corporation - China
- Lanco Infratech Ltd - India
- Global Coal Blending Company Limited - Australia
- Central Electricity Authority - India
- Independent Power Producers Association of India
- Barasentosa Lestari - Indonesia
- White Energy Company Limited
- San Jose City I Power Corp, Philippines
- Krishnapatnam Port Company Ltd. - India
- Goldman Sachs - Singapore
- Uttam Galva Steels Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Romanian Commodities Exchange
- Attock Cement Pakistan Limited
- SMC Global Power, Philippines
- Gujarat Mineral Development Corp Ltd - India
- European Bulk Services B.V. - Netherlands
- Latin American Coal - Colombia
- Vedanta Resources Plc - India
- Sakthi Sugars Limited - India
- Deloitte Consulting - India
- Asmin Koalindo Tuhup - Indonesia
- Tamil Nadu electricity Board
- Thai Mozambique Logistica
- Indo Tambangraya Megah - Indonesia
- GMR Energy Limited - India
- Marubeni Corporation - India
- Directorate Of Revenue Intelligence - India
- Bhoruka Overseas - Indonesia
- Carbofer General Trading SA - India
- Energy Link Ltd, New Zealand
- New Zealand Coal & Carbon
- Malabar Cements Ltd - India
- Economic Council, Georgia
- Savvy Resources Ltd - HongKong
- Energy Development Corp, Philippines
- Billiton Holdings Pty Ltd - Australia
- Pendopo Energi Batubara - Indonesia
- Manunggal Multi Energi - Indonesia
- Kartika Selabumi Mining - Indonesia
- Chettinad Cement Corporation Ltd - India
- Africa Commodities Group - South Africa
- Cement Manufacturers Association - India
- Indian Oil Corporation Limited
- McConnell Dowell - Australia
- Kideco Jaya Agung - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Interocean Group of Companies - India
- Sindya Power Generating Company Private Ltd
- Anglo American - United Kingdom
- Wilmar Investment Holdings
- Bhushan Steel Limited - India
- PowerSource Philippines DevCo
- Rio Tinto Coal - Australia
- MS Steel International - UAE
- LBH Netherlands Bv - Netherlands
- Therma Luzon, Inc, Philippines
- Georgia Ports Authority, United States
- Indogreen Group - Indonesia
- Ministry of Mines - Canada
- Global Green Power PLC Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Bukit Baiduri Energy - Indonesia
- Parliament of New Zealand
- Australian Commodity Traders Exchange
- Antam Resourcindo - Indonesia
- Baramulti Group, Indonesia
- OPG Power Generation Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Borneo Indobara - Indonesia
- Metalloyd Limited - United Kingdom
- Aboitiz Power Corporation - Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bulk Trading Sa - Switzerland
- Heidelberg Cement - Germany
- Ceylon Electricity Board - Sri Lanka
- Trasteel International SA, Italy
- Semirara Mining Corp, Philippines
- Indonesian Coal Mining Association
- Standard Chartered Bank - UAE
- Global Business Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Siam City Cement PLC, Thailand
- Timah Investasi Mineral - Indoneisa
- Kaltim Prima Coal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Mercuria Energy - Indonesia
- South Luzon Thermal Energy Corporation
- Kobexindo Tractors - Indoneisa
- Sarangani Energy Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Salva Resources Pvt Ltd - India
- Tata Chemicals Ltd - India
- The State Trading Corporation of India Ltd
- Chamber of Mines of South Africa
- Ministry of Finance - Indonesia
- Gujarat Sidhee Cement - India
- Makarim & Taira - Indonesia
- Petron Corporation, Philippines
- Central Java Power - Indonesia
- Jindal Steel & Power Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Meenaskhi Energy Private Limited - India
- PTC India Limited - India
- CIMB Investment Bank - Malaysia
- Intertek Mineral Services - Indonesia
- GVK Power & Infra Limited - India
- Samtan Co., Ltd - South Korea
- Commonwealth Bank - Australia
- Mintek Dendrill Indonesia
- Bukit Makmur.PT - Indonesia
- Videocon Industries ltd - India
- Medco Energi Mining Internasional
- Coalindo Energy - Indonesia
- Port Waratah Coal Services - Australia
- Ambuja Cements Ltd - India
- Merrill Lynch Commodities Europe
- Bangladesh Power Developement Board
- Kapuas Tunggal Persada - Indonesia
- Bayan Resources Tbk. - Indonesia
- Essar Steel Hazira Ltd - India
- Posco Energy - South Korea
- Bhatia International Limited - India
- VISA Power Limited - India
- IHS Mccloskey Coal Group - USA
- Larsen & Toubro Limited - India
- Simpson Spence & Young - Indonesia
- Banpu Public Company Limited - Thailand
- Madhucon Powers Ltd - India
- Globalindo Alam Lestari - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Formosa Plastics Group - Taiwan
- Iligan Light & Power Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- IEA Clean Coal Centre - UK
- PNOC Exploration Corporation - Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- SN Aboitiz Power Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- Electricity Generating Authority of Thailand
- ICICI Bank Limited - India
- Orica Mining Services - Indonesia
- Meralco Power Generation, Philippines
- Toyota Tsusho Corporation, Japan
- Bharathi Cement Corporation - India
- Miang Besar Coal Terminal - Indonesia
- Kumho Petrochemical, South Korea
- Electricity Authority, New Zealand
- Thiess Contractors Indonesia
- Indian Energy Exchange, India
- AsiaOL BioFuels Corp., Philippines
- Vizag Seaport Private Limited - India
- London Commodity Brokers - England
- Coal and Oil Company - UAE
- Planning Commission, India
- Orica Australia Pty. Ltd.
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