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Indonesia may require miners to pay share of after-tax profit under proposed rules
October 3, 2017 / 11:52 AM / 18 days ago

Indonesia may require miners to pay share of after-tax profit under proposed rules

JAKARTA, Oct 3 (Reuters) - Miners operating in Indonesia will have to pay a share of their after-tax profits to both the central and local governments under new tax rules under consideration for next year, according to documents outlining the proposal reviewed by Reuters.

Indonesia is revamping its tax code for metal miners as part of a broader shift to a system of special mining permits, which will replace existing mining contracts.

The most high-profile company involved in the transition to the new permit system is the local unit of Freeport McMoRan Inc , which operates the Grasberg mine in the eastern province of Papua, the world’s second-biggest copper mine.

Freeport agreed in August to divest a 51 percent stake in Grasberg in exchange for a 10-year extension of its operations from 2021 with potential control kept through 2041.

Under the new rules, special mining permit holders would need to pay a levy on their after-tax profits of 4 percent to the Indonesian central government and 6 percent to the regional governments where they operate, the document said.

The proposed plan would set an income tax rate of 25 percent, alongside a value-added tax on financial transactions and a land tax.

Most companies currently pay a 25 percent rate or less if they are publicly listed.

However, Freeport’s current contract, signed in 1991, sets an income rate of 35 percent, which was fixed higher in exchange for certainty that the government would not change the rate for the duration of the contract, which expires in 2021.

Freeport and other miners currently do not pay a share of profits to central or regional governments.

On Tuesday, Finance Minister Sri Mulyani Indrawati declined to confirm the details in the draft, but said the government “is preparing new rules that will regulate companies that need fiscal and non-fiscal certainty” and that the tax and royalty rates they pay will follow prevailing rules.

Indrawati also declined to comment on a Freeport letter addressed to her ministry and reviewed by Reuters, reflecting persistent and deep divisions between Freeport and the government over the valuation of the shares it must divest.

Reporting by Jakarta bureau; Writing by Gayatri Suroyo and Fergus Jensen; Editing by Christian Schmollinger

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