Gathering of Plantation Funds from companies engaged in strategic commodities plantation
Background and scope
On 18 May 2015, Government Regulation Number 24 of 2015 on Gathering of Plantation Funds ("Regulation 24") was issued. Regulation 24 implements Article 93 of Law Number 39 of 2014 on Plantations ("Law 39") in relation to the gathering of plantation funds conducted by plantation enterprises. Regulation 24 defines plantation funds as the funds gathered by the Fund Management Agency, as explained below. In general, Regulation 24 regulates the sources from which plantation funds can be gathered, the utilization of plantation funds, and the establishment of one or more Fund Management Agencies (Badan Pengelola Dana) and a Steering Committee (Komite Pengarah) for each Fund Management Agency if more than one agency established. The main purpose of the fund gathering is to support sustainable plantation industries, particularly in plantations of strategic commodities (as described below), including the development of downstream plantation industries.
Source of plantation funds
Plantation funds are sourced from:
- a. plantation companies of the following strategic commodities:
- palm oil;
- tobacco; and
- other plantation commodities as determined by the Ministry of Agriculture.
- financing institutions;
- community; and
- other valid sources e.g. grants, aid from other parties, and revenue from the management of the plantation funds.
The funds which will be gathered from plantation companies include the following:
- A levy on the export of strategic plantation commodities which will be imposed on the plantation companies exporting strategic plantation commodities and/or their derivatives, industrial companies using strategic plantation commodities as raw materials, and exporters of strategic plantation commodities. Regulation 24 states that the levy is separate from any export custom, and the levy is a deductible expense for the purpose of calculating the taxable income under the Income Tax Law. The Minister of Industry will determine the derivative commodities which will be subject to this levy.
- Contributions, the amount of which will be determined based on agreement between the Fund Management Agencies and the plantation enterprises, which can be charged periodically or at any given time.
The benefits of the plantation funds for plantation companies
Regulation 24 stipulates that the plantation funds are to be used for the following purposes:
- development of human resources in the plantation sector;
- research and development of plantations;
- plantation promotion;
- plantation rejuvenation;
- infrastructure and facilities of plantations; and
- fulfilment of food, biofuel, and downstream plantation activities.
The use of plantation funds must follow the stipulations determined by the Government.
A Fund Management Agency and a Steering Committee
The Government will establish one or more Fund Management Agency to gather, manage and distribute plantation funds, and supervise compliance by the plantation companies and exporters that are subject to the payment of the export levy. The government may also establish a Fund Management Agency for one or more strategic plantation commodities. The government will also establish a Steering Committee to supervise and provide guidance to each Fund Management Agency if more than one agency established.
Regulation 24 states that the Minister issuing the license for export activity may impose the sanction of prohibition on export on businesses that fail to pay the export levy. In addition, the Fund Management Agency may impose fines.
Gathering of Funds in the Palm Oil Sector Establishment of the Fund Management Agency of Palm Oil Plantations
On 18 May 2015, the Government issued Presidential Regulation Number 61 of 2015 on Gathering and Utilization of Oil Palm Plantation Funds (" PR 61") as the first implementing regulation of Regulation 21. PR 61 stipulates that there will be a Fund Management Agency specifically established to gather funds from palm oil plantation companies. The Fund Management Agency of Palm Oil Plantations will be within the organization of the Ministry of Finance.
Cooperation between the Fund Management Agency of Palm Oil Plantations and Government Ministries
The Fund Management Agency of Palm Oil Plantations will cooperate with the following Ministries in carrying out their duties:
- Ministry of Finance
The Minister of Finance will determine the amount of:
- the levy on the export of palm oil commodities and/or their derivatives that must be paid by the plantation companies, exporters, or industrial companies using palm oil commodities as raw materials; and
- the fine for underpayment of the levy.
- Ministry of Trade
The Minister of Trade in collaboration with the Fund Management Agency of Oil Palm Plantations will appoint a surveyor. The surveyor will verify or conduct technical assessment of the commodities. A surveyor report will be issued by the surveyor after the completion of the verification or the assessment and after the levy has been paid in full.
The surveyor report will become one of the supporting documents of a notification of export customs.
- Ministry of Energy and Mineral Resources
The cooperation with the Minister of Energy and Mineral Resources is required for the purposes of channeling the funds to the companies producing and selling biodiesel vegetative fuels in order to secure the supply and the utilization of biodiesel vegetative fuels. The Minister of Energy and Mineral Resources will further regulate the requirements to be fulfilled by the companies before they are eligible to receive the funds.
- Director General of Customs and Excise
The Fund Management Agency of Palm Oil Plantations will give the surveyor reports to the General Directorate of Customs and Excise and both agencies will carry out data reconciliation which will be used by the Fund Management Agency of Palm Oil Plantations to review the compliance with the obligation to pay the levy on the export of the palm oil plantation commodities and/or their derivatives.
The benefits of the funds
PR 61 sets the same rules as those stipulated under Regulation 24 in connection with the use of the funds. Further, PR 61 provides that the Fund Management Agency of Palm Oil Plantations is authorized to set priorities on the use of funds after taking into account the Government's programs and the guidelines set by the Steering Committee.
PR 61 stipulates that those who violate the obligation to pay the levy will be subject to prohibition on export, imposition of fines, and/or business license revocation.
The Minister of Trade will further regulate the mechanism for the imposition of administrative sanctions in the form of prohibition on conducting export activities.
It is not yet known when the government will implement the levy under PR 61 as the government has not yet established the Fund Management Agency for Oil Palm Plantations and the Fund Management Agency for other strategic commodities.
While the intent is to make the plantation sector more sustainable in the future, it remains to be seen how the levy tariff and the mechanism for imposing the levy that will be set by the Government will affect the industry. In addition, it remains to be seen how the Fund Management Agency will allocate and utilize the funds for the betterment of the Indonesian plantation industries.