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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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Thursday, 25 January 24
THE RED SEA ESCALATION IMPLICATIONS ON GLOBAL SEABORNE TRADE - MARIA BERTZELETOU
In recent days, discussions have intensified about the potential impact on the seaborne trade and ton-miles due to the evolving dynamics of market ...
Thursday, 25 January 24
RED SEA SHIPPING DISRUPTIONS KEEP GEOPOLITICAL PREMIUM FOR COMMODITIES - FITCH RATINGS
Shipping disruptions and re-routing away from the Red Sea will maintain the geopolitical premium in the main commodity markets, including for oil a ...
Friday, 19 January 24
INDONESIA TARGETS 710 MLN METRIC TONS COAL OUTPUT IN 2024 AFTER RECORD 2023 - REUTERS
Indonesia, a major thermal coal exporter, aims to produce 710 million metric tons of coal in 2024, its mining minister said on Monday, after postin ...
Friday, 19 January 24
DRUMMOND COLOMBIA COAL OUTPUT ROSE 7.1% IN 2023 - REUTERS
Coal production from miner Drummond’s Colombia operations rose 7.1% in 2023 to 29.5 million metric tons, while exports declined by 2.6% to 27 ...
Friday, 19 January 24
CHINA'S 2023 COAL OUTPUT HITS RECORD HIGH - REUTERS
China’s coal output reached a record high in 2023, data from the statistics bureau showed on Wednesday, amid an ongoing focus on energy secur ...
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- Meenaskhi Energy Private Limited - India
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- Georgia Ports Authority, United States
- Kohat Cement Company Ltd. - Pakistan
- AsiaOL BioFuels Corp., Philippines
- Carbofer General Trading SA - India
- Miang Besar Coal Terminal - Indonesia
- Siam City Cement - Thailand
- Videocon Industries ltd - India
- Indo Tambangraya Megah - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Parliament of New Zealand
- Electricity Generating Authority of Thailand
- Minerals Council of Australia
- Price Waterhouse Coopers - Russia
- Marubeni Corporation - India
- Kideco Jaya Agung - Indonesia
- Sindya Power Generating Company Private Ltd
- Petrochimia International Co. Ltd.- Taiwan
- Bhushan Steel Limited - India
- London Commodity Brokers - England
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- Tamil Nadu electricity Board
- Power Finance Corporation Ltd., India
- Chamber of Mines of South Africa
- Kepco SPC Power Corporation, Philippines
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- Offshore Bulk Terminal Pte Ltd, Singapore
- Orica Mining Services - Indonesia
- Parry Sugars Refinery, India
- ICICI Bank Limited - India
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- New Zealand Coal & Carbon
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- Coal and Oil Company - UAE
- Banpu Public Company Limited - Thailand
- SMG Consultants - Indonesia
- Manunggal Multi Energi - Indonesia
- Energy Development Corp, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- TeaM Sual Corporation - Philippines
- Salva Resources Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
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- OPG Power Generation Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Bangladesh Power Developement Board
- Larsen & Toubro Limited - India
- European Bulk Services B.V. - Netherlands
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- Ambuja Cements Ltd - India
- Aboitiz Power Corporation - Philippines
- Thai Mozambique Logistica
- Rashtriya Ispat Nigam Limited - India
- Romanian Commodities Exchange
- Siam City Cement PLC, Thailand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Central Java Power - Indonesia
- Mercator Lines Limited - India
- Metalloyd Limited - United Kingdom
- Merrill Lynch Commodities Europe
- Latin American Coal - Colombia
- Goldman Sachs - Singapore
- PTC India Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Anglo American - United Kingdom
- Intertek Mineral Services - Indonesia
- Tata Chemicals Ltd - India
- Bukit Baiduri Energy - Indonesia
- Standard Chartered Bank - UAE
- Heidelberg Cement - Germany
- SN Aboitiz Power Inc, Philippines
- PNOC Exploration Corporation - Philippines
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- GN Power Mariveles Coal Plant, Philippines
- Indian Energy Exchange, India
- Global Business Power Corporation, Philippines
- Planning Commission, India
- Holcim Trading Pte Ltd - Singapore
- Indika Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Mintek Dendrill Indonesia
- Eastern Coal Council - USA
- Sojitz Corporation - Japan
- VISA Power Limited - India
- Gujarat Mineral Development Corp Ltd - India
- PowerSource Philippines DevCo
- GMR Energy Limited - India
- Orica Australia Pty. Ltd.
- Therma Luzon, Inc, Philippines
- Xindia Steels Limited - India
- White Energy Company Limited
- Asia Pacific Energy Resources Ventures Inc, Philippines
- McConnell Dowell - Australia
- Straits Asia Resources Limited - Singapore
- Billiton Holdings Pty Ltd - Australia
- Independent Power Producers Association of India
- Karaikal Port Pvt Ltd - India
- Thiess Contractors Indonesia
- Madhucon Powers Ltd - India
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- India Bulls Power Limited - India
- Star Paper Mills Limited - India
- Lanco Infratech Ltd - India
- GAC Shipping (India) Pvt Ltd
- Toyota Tsusho Corporation, Japan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Savvy Resources Ltd - HongKong
- Altura Mining Limited, Indonesia
- Electricity Authority, New Zealand
- Timah Investasi Mineral - Indoneisa
- Sical Logistics Limited - India
- Global Coal Blending Company Limited - Australia
- Makarim & Taira - Indonesia
- Meralco Power Generation, Philippines
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- Medco Energi Mining Internasional
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- Dalmia Cement Bharat India
- Sinarmas Energy and Mining - Indonesia
- Bhoruka Overseas - Indonesia
- Vedanta Resources Plc - India
- Oldendorff Carriers - Singapore
- Essar Steel Hazira Ltd - India
- The State Trading Corporation of India Ltd
- Wood Mackenzie - Singapore
- GVK Power & Infra Limited - India
- Petron Corporation, Philippines
- Ministry of Finance - Indonesia
- Interocean Group of Companies - India
- Ceylon Electricity Board - Sri Lanka
- Antam Resourcindo - Indonesia
- Australian Coal Association
- Grasim Industreis Ltd - India
- Bhatia International Limited - India
- Rio Tinto Coal - Australia
- CIMB Investment Bank - Malaysia
- CNBM International Corporation - China
- Global Green Power PLC Corporation, Philippines
- Energy Link Ltd, New Zealand
- Directorate General of MIneral and Coal - Indonesia
- Riau Bara Harum - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Asmin Koalindo Tuhup - Indonesia
- Formosa Plastics Group - Taiwan
- The Treasury - Australian Government
- Indonesian Coal Mining Association
- Leighton Contractors Pty Ltd - Australia
- International Coal Ventures Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Semirara Mining Corp, Philippines
- Indogreen Group - Indonesia
- Bulk Trading Sa - Switzerland
- The University of Queensland
- Jaiprakash Power Ventures ltd
- Posco Energy - South Korea
- Singapore Mercantile Exchange
- Eastern Energy - Thailand
- Africa Commodities Group - South Africa
- Vijayanagar Sugar Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Cement Manufacturers Association - India
- Ministry of Mines - Canada
- Borneo Indobara - Indonesia
- Mercuria Energy - Indonesia
- Economic Council, Georgia
- Maheswari Brothers Coal Limited - India
- IEA Clean Coal Centre - UK
- South Luzon Thermal Energy Corporation
- Trasteel International SA, Italy
- Sakthi Sugars Limited - India
- Semirara Mining and Power Corporation, Philippines
- Vizag Seaport Private Limited - India
- Kaltim Prima Coal - Indonesia
- Commonwealth Bank - Australia
- Kumho Petrochemical, South Korea
- Cigading International Bulk Terminal - Indonesia
- Coastal Gujarat Power Limited - India
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- Central Electricity Authority - India
- Indian Oil Corporation Limited
- LBH Netherlands Bv - Netherlands
- Mjunction Services Limited - India
- Directorate Of Revenue Intelligence - India
- Australian Commodity Traders Exchange
- San Jose City I Power Corp, Philippines
- Ministry of Transport, Egypt
- Deloitte Consulting - India
- Edison Trading Spa - Italy
- SMC Global Power, Philippines
- Renaissance Capital - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
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