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