Mining in Indonesia Investment and Taxation Guide May 2018, 10Th Edition
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Mining in Indonesia Investment and Taxation Guide May 2018, 10th Edition www.pwc.com/id Photo source: PT Vale Indonesia Tbk Cover photo courtesy of: PT Aneka Tambang Tbk DISCLAIMER: This publication 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 publication 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 publication and, to the extent permitted by law, KAP Tanudiredja, Wibisana, Rintis & Rekan, PT Prima Wahana Caraka, PT PricewaterhouseCoopers Indonesia Advisory, PT PricewaterhouseCoopers Consulting Indonesia, and Melli Darsa & Co., Advocates & Legal Consultants, its members, employees, and agents do not accept or assume any liability, responsibility, or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance upon the information contained in this publication or for any decision based on it. Regulatory information is current to 31 March 2018. Contents Glossary 4 Foreword 8 1 The Industry in Perspective 12 2 Regulatory Framework 28 3 Contracts of Work 82 Tax Regimes for the Indonesian 92 4 Mining Sector 5 Accounting Considerations 108 Additional Regulatory Considerations 6 for Mining Investment 128 Appendices 142 About PwC | PwC Mining Contacts Insertion - Indonesian Mining Areas Map 171 Glossary Term Definition AMDAL Analisis Mengenai Dampak Lingkungan (Environmental impact assessment) BKPM Badan Koordinasi Penanaman Modal (Indonesia’s Investment Coordinating Board) BI Bank Indonesia BUMN Badan Usaha Milik Negara (National state-owned companies) BUMD Badan Usaha Milik Daerah (Regional government-owned companies) CbCR Country-by-Country Reporting CCA Coal Co-operation Agreement CCoW Coal Contract of Work CIF Cost Insurance and Freight CIT Corporate Income Tax Corporation Law Law No. 40/2007 CoW Contract of Work Contracts CoW/CCoW/CCA CSR Corporate Social Responsibility DER Debt to Equity Ratio DPR Dewan Perwakilan Rakyat (House of Representatives) DGoFT Director General of Foreign Trade DGoMC Director General of Minerals and Coal DGT Director General of Taxation DMO Domestic Market Obligation Energy Law Law No. 30/2007 Environmental Law Law No. 32/2009 EBIT Earnings Before Interest and Tax 4 PwC Term Definition EBITDA Earnings Before Interest, Tax, Depreciation, and Amortisation E&E Exploration and Evaluation EPC Engineering, Procurement, and Construction ET Eksportir Terdaftar (Registered Exporters) FOB Free on Board Forestry Law Law No. 41/1999, as amended by Law No. 19/2004 Government Government of Indonesia GR 22/2010 Government Regulation [Reference Number]/[Issuance Year] GAR Gross as Received GDP Gross Domestic Product ha Hectare HBA Harga Batubara Acuan (Coal Reference Price) HMA Harga Mineral Acuan (Mineral Reference Price) IDX Indonesia Stock Exchange IFRS International Financial Reporting Standard Investment Law Law No. 25/2007 IPR Izin Pertambangan Rakyat (Peoples’ Mining Licence) ISAK Interpretasi Standar Akuntansi Keuangan (Interpretation of SFAS) ITL Law No. 36/2008 (the prevailing Income Tax Law) IUJP Izin Usaha Jasa Pertambangan (Mining Services Business Licence) IUP Izin Usaha Pertambangan (Mining Business Licence) IUPK Izin Usaha Pertambangan Khusus (Special Mining Business Licence) Mining in Indonesia: Investment and Taxation Guide 5 Term Definition IUP-OP Izin Usaha Pertambangan Operasi Produksi (Operation Production Mining Business Licence) IUPK-OP Izin Usaha Pertambangan Khusus Operasi Produksi (Operation Production Special Mining Business Licence) KAPET Kawasan Pengembangan Ekonomi Terpadu (Integrated Economic Development Zone) KP Kuasa Pertambangan (Mining Rights) L/C Letter of Credit Mining Law Law on Mineral and Coal Mining No. 4 of 2009 MoEMR Minister of Energy and Mineral Resources MoF Minister of Finance MoT Minister of Trade mt Metric Tonne MW Mega Watt NPWP Nomor Pokok Wajib Pajak (Tax Payer Identification Number) PBB Pajak Bumi dan Bangunan (Land and Building Tax) PER 47/2015 Peraturan Direktur Jendral Pajak (DGT Regulation) [Reference Number]/[Issuance Year] Permen 28/2009 MoEMR Regulation [Reference Number]/[Issuance Year] PerMenDag 4/2015 Peraturan Menteri Perdagangan (MoT Regulation) [Reference Number]/[Issuance Year] PLN Perusahaan Listrik Negara (State-owned Electricity Company) PMA Penanaman Modal Asing (Foreign Investment) PMDN Penanaman Modal Dalam Negeri (Domestic Investment) PMK Peraturan Menteri Keuangan (MoF Regulation) PPP Public - Private Partnership PSAK Pernyataan Standar Akuntansi Keuangan (Statement of Financial Accounting Standard/SFAS) 6 PwC Term Definition PTBA PT Bukit Asam Tbk PwC PwC refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity RKAB Rencana Kerja dan Anggaran Biaya (Work Plan and Budget) SE 44/2014 Surat Edaran Direktur Jendral Pajak (DGT Circular Letter) [Reference Number]/[Issuance Year] SFAS Statement of Financial Accounting Standard UKL Upaya Pengelolaan Lingkungan (Environmental Management Effort) UoP Units of Production UPL Upaya Pemantauan Lingkungan (Environmental Monitoring Effort) VAT Value Added Tax WIUP Wilayah Izin Usaha Pertambangan (Mining Business Licence Area) WIUPK Wilayah Izin Usaha Pertambangan Khusus (Special Mining Business Licence Area) WUP Wilayah Usaha Pertambangan (Mining Business Area) WHT Withholding Tax WP Wilayah Pertambangan (Mining Area) WPN Wilayah Pencadangan Negara (State Reserve Area) WPR Wilayah Pertambangan Rakyat (Peoples’ Mining Area) WUP Wilayah Usaha Pertambangan (Commercial Mining Business Area) WUPK Wilayah Usaha Pertambangan Khusus (Special Mining Business Area) Mining in Indonesia: Investment and Taxation Guide 7 Foreword Welcome to the tenth edition of PwC Indonesia’s Mining in Indonesia: Investment and Taxation“ Guide. Since the Law on Mineral and Coal Mining No. 4 of 2009 (the “Mining Law”) was promulgated, various implementing regulations, including a number of amendments, have been issued by the Government in pursuing the goals of the Mining Law. Many challenges however still remain. These challenges apply to the holders of Contracts of Work (“CoWs”) and Coal Contracts of Work (“CCoWs”) that were issued under the pre-2009 mining regime, as well as to the holders of Mining Business Licences (Izin Usaha Pertambangan, or “IUPs”) that have been issued under the new regime. These challenges include but are not limited to: • Difficulties in dealing with the downstream in-country processing requirements under the Mining Law; • Foreign shareholder divestment requirements; • Lack of coordination between the central, provincial, and regional governments; • Conflicts between mining operations and forestry regulations; • Community relations and labour regulations; and • Corruption, collusion, and nepotism. While there has been some progress in finalising long-outstanding matters, such as renegotiation of CoW and CCoW amendments, some recent regulatory activity has raised investor concerns. At the beginning of March 2018, the Government issued a number of regulations providing guidance on the determination of the coal price for electricity that is supplied in the public interest. These regulations include Government Regulation (Peraturan Pemerintah, or “GR”) No. 8/2018, Ministry of Energy and Mineral Resources Regulation (Peraturan Menteri Energi dan Sumber Daya Mineral or “PerMen”) No. 19/2018, and Ministry of Energy and Mineral Resources Regulation Decree No. 1395 K/30/MEN/2018. The essence of these regulations is that the Minister of Energy and Mineral Resources (“MoEMR”) has the authority to determine a special selling price for coal that is supplied specifically for the fulfilment of domestic needs (i.e. the domestic procurement of coal for electricity generation). Based on this authority, and through MoEMR Decree No. 1395 K/30/MEN/2018, the MoEMR has set the selling price of coal that is procured for electricity generation for public use at a maximum of US$ 70 per metric tonne (“mt”), Free on Board Vessel, for coal that meets certain specifications (i.e. coal with a calorific value of 6,322 kcal/kg Gross as Received (“GAR”), a total moisture of 8%, etc.) 8 PwC Although the Government has stated that these regulations were determined by considering the purchasing power of the community, with a view to increasing the competitiveness of the industry with respect to electricity prices, many commentators believe that the real reason was to protect the interests of PT Perusahaan Listrik Negara (“PLN”, the state-owned electricity company). These regulations will significantly ease the burden of PLN, as its production costs have increased significantly with the increasing trend in coal prices since late 2016. The regulatory and commercial certainty in Indonesia took another hit following the issuing of these regulations, which will surely not help in attracting more investment to Indonesia. In late October 2017, Ministry of Trade Regulation (Peraturan Menteri Perdagangan or “PerMenDag”) No. 82/2017 was issued, with the aim of boosting the national shipping and insurance industries. This regulation effectively requires coal exporters to use sea transportation that is controlled by national sea transportation companies, and similarly to use insurance from national insurance companies, with the only exceptions being when no national provider