Indonesia to Relax Tax Burden on Mineral Exports

Posted by Reading Time: 3 minutes

The Indonesian government is finalizing a set of new regulations that will reduce the export tax on mineral concentrates for mining companies operating in the country. In order to avail the reduced export taxes, eligible mining companies must agree to build a smelter in the country. Additionally, the policy would also include tax incentives for the construction of smelters within the country. The new policy is designed to increase the economic activity of mining companies in Indonesia and boost the industry’s domestic economic value added.

The Indonesian government introduced a new tax structure for the export of minerals earlier this year, while also prohibiting the export of raw mineral ores. Under the current policy, which went into effect January 12, mineral concentrates may still be exported, but the export tax to do so will be gradual increased each year until 2017, when these exports will also be banned.

For example, the current export tax rate on Indonesian copper concentrates is 25 percent. This will be increased to 35 percent in 2015, and a full 60 percent by 2016.

These tax rate increases have hit the country’s mining sector hard, with Newmont Mining Corp, Freeport McMoRan Copper, and Gold Inc – which together make up 97 percent of the country’s market – halting their export operations under the new tax regime.

RELATED: Indonesia’s Ban on Raw Mineral Exports Takes Effect

Despite these concerns, the Indonesian government has explained that the new tax structure is designed to boost domestic activity by discouraging production for the sole purpose of export, but added that the new tax breaks on the export of goods for companies who invest in the country’s mining infrastructure should strike a good balance for those companies most impacted by the progressive export tax regime.

Under the proposed tax break policy, those companies that commit to investing in the construction of a domestic smelter will receive a preferential export tax rate of 10 percent on mineral concentrates. Additional benefits will be added, including an import duty exemption for materials used for construction of the smelters and an additional income tax allowance for those companies that utilize the plan, according to Deputy Minister of Finance Bambang Brodjonegoro.

Chris Devonshire-Ellis of Dezan Shira & Associates comments, “These moves – a typical carrot and stick approach – are designed to add more local value to Indonesia’s mining industry. Rather than just sell minerals straight out of the ground for value to be added in other countries, they are forcing foreign investors to properly commit to the country in investing in processing facilities. This is fair and countries such as Mongolia would do well to examine this example.”

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email indonesia@dezshira.com or visit www.dezshira.com.

Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

Related Reading

The 2014 Asia Tax Comparator
In this issue of Asia Briefing Magazine, we examine the different tax rates in 13 Asian jurisdictions – the 10 countries of ASEAN, plus China, India and Hong Kong. We examine the on-the-ground tax rates that each of these countries levy, including corporate income tax, individual income tax, indirect tax and withholding tax. We also examine residency triggers, as well as available tax incentives for the foreign investor and important compliance issues.

China to Launch Iron Ore Price Index

Key Sectors for FDI in India: Manufacturing and Energy

WTO Orders China to Remove Export Restrictions on Industrial Minerals