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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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Monday, 13 September 10
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- Borneo Indobara - Indonesia
- Essar Steel Hazira Ltd - India
- Altura Mining Limited, Indonesia
- Orica Mining Services - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Directorate Of Revenue Intelligence - India
- VISA Power Limited - India
- Star Paper Mills Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Global Business Power Corporation, Philippines
- Ministry of Mines - Canada
- Kartika Selabumi Mining - Indonesia
- Port Waratah Coal Services - Australia
- GN Power Mariveles Coal Plant, Philippines
- CNBM International Corporation - China
- Rashtriya Ispat Nigam Limited - India
- Jindal Steel & Power Ltd - India
- Mercator Lines Limited - India
- Coal and Oil Company - UAE
- New Zealand Coal & Carbon
- Africa Commodities Group - South Africa
- Coalindo Energy - Indonesia
- Makarim & Taira - Indonesia
- Bharathi Cement Corporation - India
- Orica Australia Pty. Ltd.
- Sakthi Sugars Limited - India
- Electricity Authority, New Zealand
- Central Java Power - Indonesia
- OPG Power Generation Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Malabar Cements Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Maheswari Brothers Coal Limited - India
- Sinarmas Energy and Mining - Indonesia
- The Treasury - Australian Government
- Mjunction Services Limited - India
- Semirara Mining Corp, Philippines
- Electricity Generating Authority of Thailand
- Ceylon Electricity Board - Sri Lanka
- Medco Energi Mining Internasional
- Larsen & Toubro Limited - India
- Lanco Infratech Ltd - India
- Iligan Light & Power Inc, Philippines
- ASAPP Information Group - India
- Goldman Sachs - Singapore
- Trasteel International SA, Italy
- The University of Queensland
- Tamil Nadu electricity Board
- Eastern Energy - Thailand
- Siam City Cement - Thailand
- ICICI Bank Limited - India
- Energy Development Corp, Philippines
- Carbofer General Trading SA - India
- Agrawal Coal Company - India
- Wilmar Investment Holdings
- Videocon Industries ltd - India
- Interocean Group of Companies - India
- Ministry of Finance - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Kaltim Prima Coal - Indonesia
- Kepco SPC Power Corporation, Philippines
- Parry Sugars Refinery, India
- Kalimantan Lumbung Energi - Indonesia
- Miang Besar Coal Terminal - Indonesia
- MS Steel International - UAE
- Bayan Resources Tbk. - Indonesia
- Salva Resources Pvt Ltd - India
- Georgia Ports Authority, United States
- Aboitiz Power Corporation - Philippines
- IHS Mccloskey Coal Group - USA
- Thiess Contractors Indonesia
- Alfred C Toepfer International GmbH - Germany
- Parliament of New Zealand
- Marubeni Corporation - India
- Mintek Dendrill Indonesia
- Leighton Contractors Pty Ltd - Australia
- Timah Investasi Mineral - Indoneisa
- Kobexindo Tractors - Indoneisa
- Attock Cement Pakistan Limited
- Power Finance Corporation Ltd., India
- LBH Netherlands Bv - Netherlands
- Bhatia International Limited - India
- Jaiprakash Power Ventures ltd
- India Bulls Power Limited - India
- Vizag Seaport Private Limited - India
- Posco Energy - South Korea
- Barasentosa Lestari - Indonesia
- IEA Clean Coal Centre - UK
- Aditya Birla Group - India
- Australian Commodity Traders Exchange
- McConnell Dowell - Australia
- Planning Commission, India
- PTC India Limited - India
- Coastal Gujarat Power Limited - India
- Baramulti Group, Indonesia
- Thai Mozambique Logistica
- Edison Trading Spa - Italy
- Ind-Barath Power Infra Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Indogreen Group - Indonesia
- Sojitz Corporation - Japan
- Indo Tambangraya Megah - Indonesia
- Heidelberg Cement - Germany
- Straits Asia Resources Limited - Singapore
- Intertek Mineral Services - Indonesia
- Globalindo Alam Lestari - Indonesia
- Sree Jayajothi Cements Limited - India
- Minerals Council of Australia
- Sindya Power Generating Company Private Ltd
- Cement Manufacturers Association - India
- SN Aboitiz Power Inc, Philippines
- Toyota Tsusho Corporation, Japan
- Chamber of Mines of South Africa
- Kapuas Tunggal Persada - Indonesia
- Manunggal Multi Energi - Indonesia
- Riau Bara Harum - Indonesia
- Bukit Baiduri Energy - Indonesia
- Xindia Steels Limited - India
- Bhoruka Overseas - Indonesia
- GMR Energy Limited - India
- PowerSource Philippines DevCo
- Chettinad Cement Corporation Ltd - India
- Kideco Jaya Agung - Indonesia
- Independent Power Producers Association of India
- Meralco Power Generation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Indian Oil Corporation Limited
- Indonesian Coal Mining Association
- Latin American Coal - Colombia
- Deloitte Consulting - India
- Bukit Makmur.PT - Indonesia
- Energy Link Ltd, New Zealand
- Petrochimia International Co. Ltd.- Taiwan
- Singapore Mercantile Exchange
- Australian Coal Association
- Romanian Commodities Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- London Commodity Brokers - England
- Wood Mackenzie - Singapore
- GVK Power & Infra Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Therma Luzon, Inc, Philippines
- Commonwealth Bank - Australia
- Madhucon Powers Ltd - India
- Siam City Cement PLC, Thailand
- Kumho Petrochemical, South Korea
- Bhushan Steel Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Vijayanagar Sugar Pvt Ltd - India
- SMC Global Power, Philippines
- Ministry of Transport, Egypt
- PetroVietnam Power Coal Import and Supply Company
- Vedanta Resources Plc - India
- Anglo American - United Kingdom
- Meenaskhi Energy Private Limited - India
- Indian Energy Exchange, India
- Metalloyd Limited - United Kingdom
- Offshore Bulk Terminal Pte Ltd, Singapore
- The State Trading Corporation of India Ltd
- TNB Fuel Sdn Bhd - Malaysia
- PNOC Exploration Corporation - Philippines
- Formosa Plastics Group - Taiwan
- Sarangani Energy Corporation, Philippines
- Tata Chemicals Ltd - India
- Savvy Resources Ltd - HongKong
- International Coal Ventures Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Indika Energy - Indonesia
- Global Green Power PLC Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Mercuria Energy - Indonesia
- Uttam Galva Steels Limited - India
- SMG Consultants - Indonesia
- Petron Corporation, Philippines
- Bangladesh Power Developement Board
- White Energy Company Limited
- Pendopo Energi Batubara - Indonesia
- Antam Resourcindo - Indonesia
- TeaM Sual Corporation - Philippines
- Jorong Barutama Greston.PT - Indonesia
- Binh Thuan Hamico - Vietnam
- Oldendorff Carriers - Singapore
- Rio Tinto Coal - Australia
- San Jose City I Power Corp, Philippines
- Holcim Trading Pte Ltd - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Standard Chartered Bank - UAE
- Banpu Public Company Limited - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Eastern Coal Council - USA
- CIMB Investment Bank - Malaysia
- Global Coal Blending Company Limited - Australia
- Simpson Spence & Young - Indonesia
- Grasim Industreis Ltd - India
- Price Waterhouse Coopers - Russia
- Sical Logistics Limited - India
- Karaikal Port Pvt Ltd - India
- Dalmia Cement Bharat India
- Neyveli Lignite Corporation Ltd, - India
- Cigading International Bulk Terminal - Indonesia
- South Luzon Thermal Energy Corporation
- European Bulk Services B.V. - Netherlands
- Ambuja Cements Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Merrill Lynch Commodities Europe
- Karbindo Abesyapradhi - Indoneisa
- Pipit Mutiara Jaya. PT, Indonesia
- Economic Council, Georgia
- Samtan Co., Ltd - South Korea
- Central Electricity Authority - India
- Gujarat Mineral Development Corp Ltd - India
- Bulk Trading Sa - Switzerland
- Renaissance Capital - South Africa
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