Indonesia mulls tax hikes on miners due to budgetary pressures
Indonesia is proposing hiking royalties paid by miners in a bid to bolster public finances that are being strained by President Prabowo Subianto’s spending plans.
The Energy and Mineral Resources Ministry is considering increases on the levies paid on the production of everything from copper to coal, according to a public consultation document released over the weekend. Royalties that were formerly flat, such as those paid on nickel ore, may now rise if prices increase.
The proposal comes as Indonesia’s government grapples with the huge cost of Prabowo’s flagship initiatives, including free school lunches and the Danantara state investment fund. Ministries have been asked to cut their budgets to fund the two multi-billion dollar policies after a proposed hike to value-added tax was watered down.
For Indonesia’s sprawling mining sector, which underpins much of Southeast Asia’s largest economy, the potential tax hikes come at a difficult time. Prices of nickel and coal — the country’s two biggest exports — have already sunk to multi-year lows, forcing some producers to weigh cutting back output.
For nickel, the flat 10% tax on ore production will be replaced with levies of 14% to 19%, depending on benchmark prices determined by the government. Taxes on products produced by smelters, such as ferronickel and nickel pig iron, will also be raised, adding to cost pressures that have already caused some plants to slash output.
“The royalty increase might impact Indonesia’s dominance in the downstreaming industry,” Citigroup analyst Ryan Davis said in a note on Monday. “A generally lower margin in such pricing volatility might have provided further probability of supply response.”
Royalties paid on tin, copper and gold production will also see increases. The impact on coal miners will vary depending on their permit type, with some like PT Adaro Andalan Indonesia likely to pay lower rates, Citi’s Davis wrote.
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