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