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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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Thursday, 30 December 10
DRY BULK MARKET STAYS SUBDUED AT THE END OF 2010 - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dy bulk market failed to cheer ship owners across the board as the year draws to an end, thus bringing mixed feelings ahead of 2011. On one hand ...
Thursday, 30 December 10
KANGAROO RESOURCES BUYS INDONESIAN COAL COMPANY
Australian-listed Kangaroo Resources Ltd. said Wednesday it will buy 99% of the Pakar thermal coal project in East Kalimantan, for A$277 million thr ...
Wednesday, 29 December 10
WEATHER IMPACTS RIO TINTO COAL AUSTRALIAS QUEENSLAND OPERATIONS
Press Release - As a result of severe monsoonal rain in central and northern Queensland, force majeure has been declared on coal sales contracts fro ...
Monday, 27 December 10
ANALYSIS: CHINA'S COAL PRODUCTION MISMATCHED WITH DOMESTIC DEMAND
As reported by iStock Analyst, China's coal market has been trapped in a strange cycle. Large coal production bases are facing overcapacity, while ...
Monday, 27 December 10
HUNT FOR OVERSEAS COAL ASSETS TO INTENSIFY - FINANCIAL EXPRESS
Financial Express reported that, With the Indian economy back on the track after the slowdown, merger and acquisition (M&A) activities in the re ...
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- Ind-Barath Power Infra Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Krishnapatnam Port Company Ltd. - India
- IHS Mccloskey Coal Group - USA
- Salva Resources Pvt Ltd - India
- Indonesian Coal Mining Association
- Carbofer General Trading SA - India
- Karaikal Port Pvt Ltd - India
- Eastern Energy - Thailand
- Bulk Trading Sa - Switzerland
- Singapore Mercantile Exchange
- Iligan Light & Power Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Makarim & Taira - Indonesia
- CIMB Investment Bank - Malaysia
- PowerSource Philippines DevCo
- The State Trading Corporation of India Ltd
- Georgia Ports Authority, United States
- GMR Energy Limited - India
- Wilmar Investment Holdings
- Sojitz Corporation - Japan
- Coastal Gujarat Power Limited - India
- SN Aboitiz Power Inc, Philippines
- Ambuja Cements Ltd - India
- Oldendorff Carriers - Singapore
- Mjunction Services Limited - India
- Savvy Resources Ltd - HongKong
- Xindia Steels Limited - India
- Kumho Petrochemical, South Korea
- Meralco Power Generation, Philippines
- Intertek Mineral Services - Indonesia
- Aditya Birla Group - India
- Bayan Resources Tbk. - Indonesia
- Power Finance Corporation Ltd., India
- Cigading International Bulk Terminal - Indonesia
- Marubeni Corporation - India
- Antam Resourcindo - Indonesia
- Global Green Power PLC Corporation, Philippines
- Deloitte Consulting - India
- Vedanta Resources Plc - India
- Pipit Mutiara Jaya. PT, Indonesia
- Sree Jayajothi Cements Limited - India
- Energy Development Corp, Philippines
- Bhushan Steel Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Jindal Steel & Power Ltd - India
- Independent Power Producers Association of India
- Vizag Seaport Private Limited - India
- Semirara Mining Corp, Philippines
- Anglo American - United Kingdom
- Jorong Barutama Greston.PT - Indonesia
- Chettinad Cement Corporation Ltd - India
- Sical Logistics Limited - India
- Global Coal Blending Company Limited - Australia
- Attock Cement Pakistan Limited
- Edison Trading Spa - Italy
- Timah Investasi Mineral - Indoneisa
- Baramulti Group, Indonesia
- Simpson Spence & Young - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Videocon Industries ltd - India
- Renaissance Capital - South Africa
- Mercator Lines Limited - India
- Miang Besar Coal Terminal - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Parliament of New Zealand
- White Energy Company Limited
- Semirara Mining and Power Corporation, Philippines
- CNBM International Corporation - China
- Bangladesh Power Developement Board
- Economic Council, Georgia
- London Commodity Brokers - England
- Siam City Cement - Thailand
- Coalindo Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- AsiaOL BioFuels Corp., Philippines
- Thai Mozambique Logistica
- Commonwealth Bank - Australia
- Indo Tambangraya Megah - Indonesia
- Banpu Public Company Limited - Thailand
- Gujarat Mineral Development Corp Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Price Waterhouse Coopers - Russia
- Mintek Dendrill Indonesia
- Parry Sugars Refinery, India
- Central Java Power - Indonesia
- Pendopo Energi Batubara - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- The University of Queensland
- PNOC Exploration Corporation - Philippines
- Siam City Cement PLC, Thailand
- GVK Power & Infra Limited - India
- PTC India Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Tamil Nadu electricity Board
- Samtan Co., Ltd - South Korea
- Neyveli Lignite Corporation Ltd, - India
- Rio Tinto Coal - Australia
- Tata Chemicals Ltd - India
- Heidelberg Cement - Germany
- Manunggal Multi Energi - Indonesia
- Electricity Authority, New Zealand
- Chamber of Mines of South Africa
- Energy Link Ltd, New Zealand
- MS Steel International - UAE
- Latin American Coal - Colombia
- Minerals Council of Australia
- Thiess Contractors Indonesia
- Petron Corporation, Philippines
- Medco Energi Mining Internasional
- Jaiprakash Power Ventures ltd
- Maheswari Brothers Coal Limited - India
- ASAPP Information Group - India
- Port Waratah Coal Services - Australia
- Directorate Of Revenue Intelligence - India
- Madhucon Powers Ltd - India
- Australian Commodity Traders Exchange
- Sindya Power Generating Company Private Ltd
- Kartika Selabumi Mining - Indonesia
- Lanco Infratech Ltd - India
- Electricity Generating Authority of Thailand
- SMG Consultants - Indonesia
- Orica Australia Pty. Ltd.
- Merrill Lynch Commodities Europe
- Rashtriya Ispat Nigam Limited - India
- ICICI Bank Limited - India
- Aboitiz Power Corporation - Philippines
- Posco Energy - South Korea
- Metalloyd Limited - United Kingdom
- Vijayanagar Sugar Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- TeaM Sual Corporation - Philippines
- The Treasury - Australian Government
- Goldman Sachs - Singapore
- Romanian Commodities Exchange
- Riau Bara Harum - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Africa Commodities Group - South Africa
- Grasim Industreis Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Formosa Plastics Group - Taiwan
- Eastern Coal Council - USA
- Bhoruka Overseas - Indonesia
- Bharathi Cement Corporation - India
- San Jose City I Power Corp, Philippines
- Larsen & Toubro Limited - India
- Indogreen Group - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- South Luzon Thermal Energy Corporation
- Gujarat Electricity Regulatory Commission - India
- Leighton Contractors Pty Ltd - Australia
- Star Paper Mills Limited - India
- Planning Commission, India
- Bhatia International Limited - India
- Trasteel International SA, Italy
- LBH Netherlands Bv - Netherlands
- GAC Shipping (India) Pvt Ltd
- Globalindo Alam Lestari - Indonesia
- Global Business Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Indika Energy - Indonesia
- Meenaskhi Energy Private Limited - India
- European Bulk Services B.V. - Netherlands
- Orica Mining Services - Indonesia
- Sakthi Sugars Limited - India
- Kepco SPC Power Corporation, Philippines
- Cement Manufacturers Association - India
- Kobexindo Tractors - Indoneisa
- Indian Oil Corporation Limited
- Binh Thuan Hamico - Vietnam
- VISA Power Limited - India
- Holcim Trading Pte Ltd - Singapore
- Alfred C Toepfer International GmbH - Germany
- Wood Mackenzie - Singapore
- Standard Chartered Bank - UAE
- Coal and Oil Company - UAE
- TNB Fuel Sdn Bhd - Malaysia
- Agrawal Coal Company - India
- Toyota Tsusho Corporation, Japan
- International Coal Ventures Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Central Electricity Authority - India
- Malabar Cements Ltd - India
- Barasentosa Lestari - Indonesia
- Bukit Makmur.PT - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Altura Mining Limited, Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Mercuria Energy - Indonesia
- Uttam Galva Steels Limited - India
- Billiton Holdings Pty Ltd - Australia
- Australian Coal Association
- Interocean Group of Companies - India
- Kideco Jaya Agung - Indonesia
- Sinarmas Energy and Mining - Indonesia
- IEA Clean Coal Centre - UK
- Asmin Koalindo Tuhup - Indonesia
- Gujarat Sidhee Cement - India
- Bukit Asam (Persero) Tbk - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- SMC Global Power, Philippines
- India Bulls Power Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Borneo Indobara - Indonesia
- Ministry of Mines - Canada
- New Zealand Coal & Carbon
- Kaltim Prima Coal - Indonesia
- Dalmia Cement Bharat India
- Ministry of Transport, Egypt
- McConnell Dowell - Australia
- Therma Luzon, Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- Indian Energy Exchange, India
- Ministry of Finance - Indonesia
- OPG Power Generation Pvt Ltd - India
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