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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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Saturday, 20 November 10
ITALIAN STEAM COAL MARKET HAS RECOVERED - ITALIAN COAL ASSOCIATION
Press Release - This year Italy will import 17 million tons of steam coal, up 3% from 2009, and 5.5 million tons of coking coal and PCI, up 37% over ...
Friday, 19 November 10
WE'LL THINK ABOUT COAL TOMORROW - ANALYSIS
The future of coal generation in Russia is in question. The largest energy companies have abandoned their initial plans to switch their therma ...
Friday, 19 November 10
DRY BULK MARKET ON THE ROPES WITH BDI PLUNGING TO 2,164 POINTS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
With the panamax markets suffering the most this week, but a ray of hope for the capesize market, which appears to be stabilizing after days of fall ...
Thursday, 18 November 10
WORLD COAL ASSOCIATION WELCOMES NEW CHAIRMAN & SHENHUA GROUP AS NEW MEMBER 17 NOVEMBER 2010
Press Release – The premier global coal industry association marks its 25th anniversary with a new Chairman and welcomes China’s lar ...
Thursday, 18 November 10
MUNDRA PORT AWARDED BEST PRIVATE PORT - COMMODITY ONLINE / HELLENIC SHIPPING
Adani Group owned, Mundra Port has been awarded the Annual Indian Maritime Gateway Award for the Best Private Port of the Year for the third consecu ...
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- Kartika Selabumi Mining - Indonesia
- Maheswari Brothers Coal Limited - India
- IEA Clean Coal Centre - UK
- The State Trading Corporation of India Ltd
- The Treasury - Australian Government
- Tata Chemicals Ltd - India
- Agrawal Coal Company - India
- Economic Council, Georgia
- Kumho Petrochemical, South Korea
- Riau Bara Harum - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Electricity Generating Authority of Thailand
- Ministry of Mines - Canada
- LBH Netherlands Bv - Netherlands
- Neyveli Lignite Corporation Ltd, - India
- Australian Commodity Traders Exchange
- Kepco SPC Power Corporation, Philippines
- Grasim Industreis Ltd - India
- The University of Queensland
- TNB Fuel Sdn Bhd - Malaysia
- Uttam Galva Steels Limited - India
- Indika Energy - Indonesia
- Planning Commission, India
- Medco Energi Mining Internasional
- Karbindo Abesyapradhi - Indoneisa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sical Logistics Limited - India
- Malabar Cements Ltd - India
- Indian Oil Corporation Limited
- Globalindo Alam Lestari - Indonesia
- Romanian Commodities Exchange
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vizag Seaport Private Limited - India
- Parliament of New Zealand
- Ind-Barath Power Infra Limited - India
- Meenaskhi Energy Private Limited - India
- Bulk Trading Sa - Switzerland
- Interocean Group of Companies - India
- Simpson Spence & Young - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Altura Mining Limited, Indonesia
- Bukit Baiduri Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Samtan Co., Ltd - South Korea
- Billiton Holdings Pty Ltd - Australia
- Indo Tambangraya Megah - Indonesia
- Energy Link Ltd, New Zealand
- Jorong Barutama Greston.PT - Indonesia
- Anglo American - United Kingdom
- CNBM International Corporation - China
- Carbofer General Trading SA - India
- India Bulls Power Limited - India
- SMC Global Power, Philippines
- Salva Resources Pvt Ltd - India
- ASAPP Information Group - India
- Timah Investasi Mineral - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Semirara Mining Corp, Philippines
- Krishnapatnam Port Company Ltd. - India
- Vijayanagar Sugar Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Ministry of Finance - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- London Commodity Brokers - England
- Essar Steel Hazira Ltd - India
- Videocon Industries ltd - India
- Pendopo Energi Batubara - Indonesia
- Thai Mozambique Logistica
- Energy Development Corp, Philippines
- Toyota Tsusho Corporation, Japan
- GAC Shipping (India) Pvt Ltd
- Vedanta Resources Plc - India
- Kaltim Prima Coal - Indonesia
- Australian Coal Association
- Lanco Infratech Ltd - India
- CIMB Investment Bank - Malaysia
- Jaiprakash Power Ventures ltd
- Baramulti Group, Indonesia
- McConnell Dowell - Australia
- ICICI Bank Limited - India
- Kideco Jaya Agung - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Singapore Mercantile Exchange
- Straits Asia Resources Limited - Singapore
- Borneo Indobara - Indonesia
- Wilmar Investment Holdings
- Formosa Plastics Group - Taiwan
- Power Finance Corporation Ltd., India
- Coalindo Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- VISA Power Limited - India
- Bharathi Cement Corporation - India
- Commonwealth Bank - Australia
- Kalimantan Lumbung Energi - Indonesia
- Indonesian Coal Mining Association
- Goldman Sachs - Singapore
- Sinarmas Energy and Mining - Indonesia
- Bhoruka Overseas - Indonesia
- Directorate Of Revenue Intelligence - India
- Aboitiz Power Corporation - Philippines
- Indian Energy Exchange, India
- Renaissance Capital - South Africa
- Makarim & Taira - Indonesia
- Petron Corporation, Philippines
- PowerSource Philippines DevCo
- Sree Jayajothi Cements Limited - India
- Aditya Birla Group - India
- Attock Cement Pakistan Limited
- Bangladesh Power Developement Board
- Binh Thuan Hamico - Vietnam
- SMG Consultants - Indonesia
- Siam City Cement PLC, Thailand
- Chamber of Mines of South Africa
- Africa Commodities Group - South Africa
- IHS Mccloskey Coal Group - USA
- Central Java Power - Indonesia
- Sarangani Energy Corporation, Philippines
- Indogreen Group - Indonesia
- Electricity Authority, New Zealand
- Bhatia International Limited - India
- Metalloyd Limited - United Kingdom
- Orica Australia Pty. Ltd.
- Bhushan Steel Limited - India
- Cigading International Bulk Terminal - Indonesia
- Global Coal Blending Company Limited - Australia
- Dalmia Cement Bharat India
- Latin American Coal - Colombia
- Kohat Cement Company Ltd. - Pakistan
- Gujarat Electricity Regulatory Commission - India
- Bayan Resources Tbk. - Indonesia
- Gujarat Sidhee Cement - India
- White Energy Company Limited
- New Zealand Coal & Carbon
- Global Business Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Holcim Trading Pte Ltd - Singapore
- Standard Chartered Bank - UAE
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining and Power Corporation, Philippines
- Port Waratah Coal Services - Australia
- Meralco Power Generation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Central Electricity Authority - India
- Deloitte Consulting - India
- San Jose City I Power Corp, Philippines
- Star Paper Mills Limited - India
- Thiess Contractors Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Therma Luzon, Inc, Philippines
- PTC India Limited - India
- Xindia Steels Limited - India
- Georgia Ports Authority, United States
- Antam Resourcindo - Indonesia
- Madhucon Powers Ltd - India
- Trasteel International SA, Italy
- Rashtriya Ispat Nigam Limited - India
- Kobexindo Tractors - Indoneisa
- Parry Sugars Refinery, India
- PetroVietnam Power Coal Import and Supply Company
- International Coal Ventures Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GMR Energy Limited - India
- Minerals Council of Australia
- Independent Power Producers Association of India
- Cement Manufacturers Association - India
- Ambuja Cements Ltd - India
- Chettinad Cement Corporation Ltd - India
- Coastal Gujarat Power Limited - India
- Mjunction Services Limited - India
- Sojitz Corporation - Japan
- Siam City Cement - Thailand
- Banpu Public Company Limited - Thailand
- Bukit Makmur.PT - Indonesia
- Larsen & Toubro Limited - India
- Tamil Nadu electricity Board
- TeaM Sual Corporation - Philippines
- Ministry of Transport, Egypt
- Coal and Oil Company - UAE
- Posco Energy - South Korea
- Sindya Power Generating Company Private Ltd
- Karaikal Port Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Mercator Lines Limited - India
- AsiaOL BioFuels Corp., Philippines
- South Luzon Thermal Energy Corporation
- Oldendorff Carriers - Singapore
- European Bulk Services B.V. - Netherlands
- Leighton Contractors Pty Ltd - Australia
- Alfred C Toepfer International GmbH - Germany
- Heidelberg Cement - Germany
- Mercuria Energy - Indonesia
- Price Waterhouse Coopers - Russia
- GVK Power & Infra Limited - India
- Manunggal Multi Energi - Indonesia
- SN Aboitiz Power Inc, Philippines
- Eastern Coal Council - USA
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ceylon Electricity Board - Sri Lanka
- Edison Trading Spa - Italy
- Sakthi Sugars Limited - India
- Savvy Resources Ltd - HongKong
- Mintek Dendrill Indonesia
- Eastern Energy - Thailand
- Rio Tinto Coal - Australia
- Marubeni Corporation - India
- Pipit Mutiara Jaya. PT, Indonesia
- Orica Mining Services - Indonesia
- Merrill Lynch Commodities Europe
- MS Steel International - UAE
- Barasentosa Lestari - Indonesia
- Wood Mackenzie - Singapore
- Bahari Cakrawala Sebuku - Indonesia
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