Introduction

The Indonesian Government continues to vacillate between waving a stick and dangling a carrot to encourage compliance with the controversial raw ore export ban, which came into effect in January 2014.

In May (Indonesia’s raw ore export ban – five months on) we reported that the Government was considering providing tax relief to smelter companies.

In August, the Ministry of Finance issued a regulation reducing the export tax payable on raw ore exports, provided there is evidence that the company has committed to build a smelter.  The effect of the new regulation is that the more advanced the development of the smelter, the less export tax will be payable.

New approach

There are three phases of development:

  • for providing a “seriousness guarantee” with smelter development of up to 7.5%, the export tax is set at 7.5%;
  • for smelter development of between 7.5% and 30%, the export tax is 5%; and
  • for smelter development exceeding 30%, no export tax is payable.

Tax treatment for smelter companies

The original proposal was for a blanket ban on raw ore exports. In a last-minute “compromise” in January 2014, export of certain concentrates with a minimum purity of 15% was permitted to continue if a substantial export tax was paid. The export tax was set at 20%-25% for 2014, progressively increasing to 60% by July 2016, irrespective of whether a company planned to build a smelter.

The large export tax will continue to apply to companies that have not committed to building a smelter.

Copper, iron, manganese, lead, zinc, ilminite and titanium concentrates may be exported with the benefit of the export tax-based exemptions included in the original “compromise” that we reported in May, while there are still no export tax-based exemptions for nickel, bauxite, tin, gold, silver or chronium.

We mentioned in May that the Government had proposed limited relief for foreign shareholders from divestment obligations where the company holds a mining permit and operates a smelter, and no divestment requirements are available for foreign shareholders that operate a smelter only.  At this point, the proposed divestment relief has not yet been included in a new regulation.