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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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- Eastern Coal Council - USA
- CIMB Investment Bank - Malaysia
- Coal and Oil Company - UAE
- India Bulls Power Limited - India
- TeaM Sual Corporation - Philippines
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- Indian Oil Corporation Limited
- Sakthi Sugars Limited - India
- LBH Netherlands Bv - Netherlands
- Iligan Light & Power Inc, Philippines
- OPG Power Generation Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Planning Commission, India
- Cement Manufacturers Association - India
- Merrill Lynch Commodities Europe
- Singapore Mercantile Exchange
- Coalindo Energy - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Grasim Industreis Ltd - India
- Maheswari Brothers Coal Limited - India
- GVK Power & Infra Limited - India
- Tata Chemicals Ltd - India
- Kaltim Prima Coal - Indonesia
- Baramulti Group, Indonesia
- Ind-Barath Power Infra Limited - India
- Edison Trading Spa - Italy
- Bukit Baiduri Energy - Indonesia
- Ministry of Transport, Egypt
- AsiaOL BioFuels Corp., Philippines
- Parry Sugars Refinery, India
- Kobexindo Tractors - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Bhatia International Limited - India
- IHS Mccloskey Coal Group - USA
- Mercator Lines Limited - India
- Directorate Of Revenue Intelligence - India
- Larsen & Toubro Limited - India
- Tamil Nadu electricity Board
- Orica Mining Services - Indonesia
- Bhoruka Overseas - Indonesia
- London Commodity Brokers - England
- Port Waratah Coal Services - Australia
- Bharathi Cement Corporation - India
- Billiton Holdings Pty Ltd - Australia
- Minerals Council of Australia
- Pendopo Energi Batubara - Indonesia
- Vedanta Resources Plc - India
- Renaissance Capital - South Africa
- Chettinad Cement Corporation Ltd - India
- European Bulk Services B.V. - Netherlands
- Sarangani Energy Corporation, Philippines
- Eastern Energy - Thailand
- Ceylon Electricity Board - Sri Lanka
- Pipit Mutiara Jaya. PT, Indonesia
- Rashtriya Ispat Nigam Limited - India
- Energy Link Ltd, New Zealand
- Ministry of Finance - Indonesia
- Intertek Mineral Services - Indonesia
- SN Aboitiz Power Inc, Philippines
- Lanco Infratech Ltd - India
- Meenaskhi Energy Private Limited - India
- CNBM International Corporation - China
- Global Coal Blending Company Limited - Australia
- Altura Mining Limited, Indonesia
- Xindia Steels Limited - India
- Mjunction Services Limited - India
- Orica Australia Pty. Ltd.
- Therma Luzon, Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Electricity Generating Authority of Thailand
- VISA Power Limited - India
- ICICI Bank Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Star Paper Mills Limited - India
- Africa Commodities Group - South Africa
- Sical Logistics Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Agrawal Coal Company - India
- PTC India Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- White Energy Company Limited
- Power Finance Corporation Ltd., India
- Metalloyd Limited - United Kingdom
- International Coal Ventures Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Karaikal Port Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- South Luzon Thermal Energy Corporation
- ASAPP Information Group - India
- Australian Commodity Traders Exchange
- Salva Resources Pvt Ltd - India
- Wilmar Investment Holdings
- Bhushan Steel Limited - India
- Indika Energy - Indonesia
- Jaiprakash Power Ventures ltd
- Medco Energi Mining Internasional
- Wood Mackenzie - Singapore
- Aditya Birla Group - India
- Toyota Tsusho Corporation, Japan
- Global Business Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Posco Energy - South Korea
- Marubeni Corporation - India
- GMR Energy Limited - India
- Indonesian Coal Mining Association
- Carbofer General Trading SA - India
- Ministry of Mines - Canada
- Binh Thuan Hamico - Vietnam
- PowerSource Philippines DevCo
- McConnell Dowell - Australia
- Mercuria Energy - Indonesia
- SMG Consultants - Indonesia
- Heidelberg Cement - Germany
- Goldman Sachs - Singapore
- Trasteel International SA, Italy
- Cigading International Bulk Terminal - Indonesia
- The Treasury - Australian Government
- Timah Investasi Mineral - Indoneisa
- Semirara Mining Corp, Philippines
- Central Java Power - Indonesia
- Banpu Public Company Limited - Thailand
- Standard Chartered Bank - UAE
- Attock Cement Pakistan Limited
- Electricity Authority, New Zealand
- Vizag Seaport Private Limited - India
- Makarim & Taira - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Sree Jayajothi Cements Limited - India
- Borneo Indobara - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Gujarat Sidhee Cement - India
- Australian Coal Association
- Independent Power Producers Association of India
- Economic Council, Georgia
- Semirara Mining and Power Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Indogreen Group - Indonesia
- SMC Global Power, Philippines
- Anglo American - United Kingdom
- Rio Tinto Coal - Australia
- Meralco Power Generation, Philippines
- Romanian Commodities Exchange
- Leighton Contractors Pty Ltd - Australia
- Directorate General of MIneral and Coal - Indonesia
- Siam City Cement PLC, Thailand
- Aboitiz Power Corporation - Philippines
- Interocean Group of Companies - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Uttam Galva Steels Limited - India
- Latin American Coal - Colombia
- Kartika Selabumi Mining - Indonesia
- Barasentosa Lestari - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Malabar Cements Ltd - India
- Essar Steel Hazira Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Madhucon Powers Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Commonwealth Bank - Australia
- Maharashtra Electricity Regulatory Commission - India
- Indian Energy Exchange, India
- Central Electricity Authority - India
- Krishnapatnam Port Company Ltd. - India
- Bulk Trading Sa - Switzerland
- Ambuja Cements Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- GN Power Mariveles Coal Plant, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Jindal Steel & Power Ltd - India
- Energy Development Corp, Philippines
- Formosa Plastics Group - Taiwan
- IEA Clean Coal Centre - UK
- Asmin Koalindo Tuhup - Indonesia
- Global Green Power PLC Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Kepco SPC Power Corporation, Philippines
- The State Trading Corporation of India Ltd
- Sojitz Corporation - Japan
- PetroVietnam Power Coal Import and Supply Company
- Savvy Resources Ltd - HongKong
- Georgia Ports Authority, United States
- Chamber of Mines of South Africa
- The University of Queensland
- Thai Mozambique Logistica
- New Zealand Coal & Carbon
- Petron Corporation, Philippines
- Bangladesh Power Developement Board
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kalimantan Lumbung Energi - Indonesia
- Deloitte Consulting - India
- Parliament of New Zealand
- Simpson Spence & Young - Indonesia
- Indo Tambangraya Megah - Indonesia
- San Jose City I Power Corp, Philippines
- Siam City Cement - Thailand
- Sindya Power Generating Company Private Ltd
- Straits Asia Resources Limited - Singapore
- MS Steel International - UAE
- Mintek Dendrill Indonesia
- Oldendorff Carriers - Singapore
- GAC Shipping (India) Pvt Ltd
- Antam Resourcindo - Indonesia
- Price Waterhouse Coopers - Russia
- Kumho Petrochemical, South Korea
- Bukit Makmur.PT - Indonesia
- Dalmia Cement Bharat India
- Videocon Industries ltd - India
- Samtan Co., Ltd - South Korea
- Thiess Contractors Indonesia
- Manunggal Multi Energi - Indonesia
- Holcim Trading Pte Ltd - Singapore
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