Indonesia plans 25% to 50% export sales tax

After holding talks of imposing mining export tax, as both the Minister of Industry and Minister of Energy and Mineral Resources were still waiting to discuss the plans, talks within government departments revealed that Indonesia might impose up to 25 percent export tax starting this year.

"We should actually impose the export sales tax early this year, so that the current export rush can be avoided," said Industry Ministry Secretary General Anshari Bukhari to Reuters, adding that the government plans to increase the export tax to 50 percent in 2013.

Bukhari refused to disclose the exact date the export tax will be first introduced, but stated that it would be imposed on miners' export sales.

It is known that mineral and metal ore exports has ramped up as producers prepared to face the planned 2014 ban, recently fast forwarded to May 7 this year through the enactment of Ministerial Regulation 7/2012.

India, a major buyer of Indonesian coal along with China, Japan and South Korea, said it would raise concerns about the proposed tax with the Indonesian government. "The (Indian) government will take this up with Indonesia. It will also nullify our efforts to help imports by removing the 5 percent import duty on thermal coal (for power plants)," said Alok Perti, the top official in India's coal ministry to Reuters.

Analysts' comments were mixed. Citi analyst David Wilson in London stated that the many released 'unclear' regulations in recent weeks might disturb the investment climate. "Right now there appears to be very little clarity, there is talk of taxes, but when will they be introduced? There is talk of ore export bans, with confusion over whether bans will start as early as May, or by 2014, and then there is also the issue of majority local ownership for any mining operations. This confusion is not positive in terms of driving forward investment plans in Indonesia's mining sector," he said.

Another London based analyst, Hayden Atkins from Macquarie, stated while the tax on base metals was expected, the tax on coal was a surprise since there would likely be limited economic opportunities in "upgrading" coal. "If they did do it, it would definitely cause some ripples, particularly for Indian buyers. A 25 percent tax is huge. Nowhere else really has the same kind of tax burden on coal directly," he said.

BNP Paribas metals analyst Stephen Briggs was not surprised, but pessimistic. "This is one of many examples around the world where mining companies are making swillions, and everybody else involved wants a slice of the pie - whether it unions wanting higher wages or government wanting a bigger take of what is a national resource. It is not irrational. It sounds like this is adding up to a pretty chunky imposition on mining companies and it's hard to believe all of this would be pushed though," he said.

Benchmark copper prices on the London Metal Exchange were little-affected by Indonesia's export tax plans, holding near two-month highs after better-than-expected manufacturing data in China and the United States.(*)