Hendra Sinadia: the Gov`t Should Offer Incentives

Sunday, 19 June, 2016 | 18:08 WIB

TEMPO.CO, Jakarta - The coal mining industry in Indonesia has not performed at its best these past few years. The price of coal has been plummeting for the past year, down to its lowest point at US$50.92 per ton in February 2016. It improved slightly last March to US$51.62, thanks to an increase in the global oil price.

Despite the improving performance of the coal industry, the government has significantly cut back its non-tax revenue (PNBP) target from minerals and coal, to Rp30.1 trillion from the initial target of Rp40.8 trillion. One of the reasons cited is the pending royalty payments due by a number of coal-producing companies.

Data from the energy and mineral resources ministry show a total of Rp18 billion in unpaid royalty from coal companies. The deputy executive director of the Indonesian Coal Mining Association (ICMA), Hendra Sinadia, did not dispute this fact. He said these companies took the initiative to withhold paying royalties because of suspended tax returns. “The companies felt like it was their right to get refunded from overpaying taxes in the past,” he added.

Hendra, who joined ICMA two years ago, said that this issue dated back years ago and had yet to be resolved by both the government and the private sector. He spoke to Tempo English reporter Amanda Siddharta on the dispute. Excerpts:

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What is the root cause of this issue?

In 2000, the government issued Regulation No. 144/2000, which states that coal is not included as a taxable commodity, so (companies) would not have to pay the value-added tax (PPN). But in accordance with their contracts, they continued to pay taxes. In the end, these companies overpaid and there should be tax returns, restitution. But because of the new regulation, there is suddenly an uncertainty in refunding the taxes.

So the coal companies have not received the tax restitution?

The problem was that when they were supposed to get the restitution, there was disagreement among government institutions. They couldn’t agree whether coal was included as taxable or non-taxable commodity.

The tax refund and royalty are handled by different government institutions. Why do companies withhold royalty payments if the issue is about the tax refunds?

That’s right: the institutions concerned are different. Royalty is another obligation, 13.5 percent payable over exports for coal mining business permit holders (PKP2B). And then there’s the one charged to the mining operation permit (IUP) holders, 7.5 percent. But they are connected because it’s related to the companies’ withheld payment from the value-added tax they have already paid. The government has not paid them any restitution, so they reciprocated.

Some of the companies with the largest amount of withheld royalty payments are from the first generation. Do their contracts require them to pay more?

Looking at the coal mining sector, it is dominated by the first generation. And their contract uses the ‘nail-down’ system. So the tax rate was set at 45 percent. When the rate went down to 30 or 25 percent, they continued to pay the figure written in the contract. Meanwhile, it’s the opposite with the second generation. They follow the ‘prevailing’ system. So the rate depends on the current rate set by the government. The third generation companies can have either the ‘nail-down’ or ‘prevailing’ schemes.

Could the companies’ refusal to pay royalties have anything to do with the current condition of coal industry?

We must differentiate between companies that are responsible although there are those in this industry that are not. Unfortunately, the image of the coal mining sector has been impacted by the companies that are not accountable. But the responsible companies, no matter how low the coal price gets, would still pay the (required) royalty. They will abide by their obligation. In this case, it’s not that they don’t want to comply, it’s because there is a dispute about the value-added tax.

The government said that to increase the PNBP target, royalty on coal must be increased. What do you think?

I think that’s wrong. The price (of coal) is currently low; the government should not be increasing royalties. During this time when the price is low, the government should be offering the industry incentives so it can survive. If royalties are raised, the government is much less likely to achieve its target. Companies would rather close down than pay such a large amount. Coal companies are already having a difficult time now with having to pay 7 percent, and it will be worse for them if it’s increased to 13 percent. Many would prefer to just stop operating.

http://en.tempo.co/read/news/2016/06/19/241781278/Hendra-Sinadia-the-Govt-Should-Offer-Incentives