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