Government set to soon issue regulation on taxation in mineral mining sector

Petromindo

The government is set to soon issue a new regulation on taxation in the mineral mining sector, specifically for miners such as gold and copper giants PT Freeport Indonesia (PTFI) and PT Amman Mineral Nusa Tenggara (AMNT) whose mining permit status have been converted from Contract of Work (COW) to IUPK special mining business license.

The draft of the new regulation, which also regulates government non-tax revenue from the sector, is currently at the State Secretary for finalization before approval by President Joko Widodo.

According to copy of the draft, leaked to the press on Monday, the IUPK miners will be subject to a lower income tax of 25 percent. In comparison, PTFI?s income tax under the COW regime was set at 35 percent.

However, under the new regulation, the central government will be entitled to four percent of the net profit of the IUPK miners, and the local government of regions where the mines are located will be entitled to six percent of the net profit. Out of the six percent profit allocation, one percent will go to the provincial administration, 2.5 percent to the regency/mayoralty administrations of regions where the mines are located, and another 2.5 percent for other regions in the same province.

The government introduced earlier this year new regulations allowing miners to continue export of mineral concentrates for another five years under certain conditions including developing domestic smelter and converting their COW into IUPK. While PT AMNT has fully agreed to the new regulations, PTFI has protested the new regulations, triggering the company and the government to be engaged in current negotiations which started in April.

PTFI has agreed to be given temporary IUPK valid until October 10 to allow the company resume export of copper concentrates, pending completion of negotiation process with the government. Among of the key points of the negotiation is the demand of PTFI for fiscal stability to help ensure the stability of its investment. The company has demanded for the application of so-called nailed down tax system in the new IUPK, the same as applied in the COW, a request which has been rejected by the government, who insists on taxation system based on prevailing regulations in the IUPK regime.

The Ministry of Finance is in charge of sorting out this taxation issue, and has said that a new government regulation will be issued as legal umbrella on taxation of miners holding the IUPK business license.

The new government regulation on the taxation issue is expected to be implemented next year.

Meanwhile, other taxes and levies including those applied by local administrations will be based on existing regulations. (*)