Govt agrees on nailed-down tax for Rio Tinto's nickel project

The government has agreed to grant a demand from the Anglo-Australian company Rio Tinto to apply a nailed-down tax payment system for its US$2 billion the Lasamphala nickel project in Central Sulawesi and Southeast Sulawesi.

?The bill on income tax (which is still being deliberated by lawmakers) will support a lower tax environment, in line with the tax rate we have decided to give to Rio Tinto,? Chairman of the Investment Coordinating Board Muhammad Luthfi said.

Luthfi believes the nailed-down tax payment system will bring more benefits to the government and private investors as tax systems around the world decline, keeping Indonesia competitive as an investment destination.

Under the nailed-down tax payment system, a company is taxed based on certain rates which remain unchanged regardless of amendments to the tax system.

The existing prevailing tax system uses progressive tax rates scaled according to income. The rates under this system are subject to change.

Luthfi said the tax system was one of Rio Tinto?s demands to be agreed upon prior the firm?s deal on a Contract of Work (CoW).

The company is currently battling overlapping concessions with local companies, backed by local administrations that issued the smaller businesses mining licenses to operate on Rio Tinto?s concessions.

The Morowali regency Central Sulawesi has issued Mining Contracts (KP) over areas that are part of the Lasamphala concession to five companies affiliated to local firm Bintangdelapan Group and is processing applications from three other companies. Meanwhile, the Konawe regency in Southeast Sulawesi has received seven applications for contracts over areas overlapping with the Lasamphala concession from companies affiliated with Bintangdelapan, including PT Panca Metta, PT Meltapratama Perkasa, PT Bintangdelapan Wahana and PT Bintangdelapan Mineral.

Bintangdelapan is cooperating with several contractors from China.

Energy and Mineral Resources Minister Purnomo Yusgiantoro pledged on Monday to work with the Ministry of Home Affairs to resolve the problem.

Numerous mining projects in the country have run aground due partly to legal uncertainties over the authority of local administrations to manage mining resources, a result of loopholes in existing laws and regulations.

The government and the House of Representatives are currently deliberating amendments to the mining law to better manage the sector and eliminate long-standing loopholes.(*)