Dynamics of VAT Imposition on Coal Delivery

Dynamics of VAT Imposition on Coal Delivery

PPN - 15 Sep, 2023 14:09 WIB

Jakarta, Ideatax -- Ministry of Energy and Mineral Resources of the Republic of Indonesia or Kementerian Energi dan Sumberdaya Mineral (ESDM) reported that in 2022, there was an increase in coal production and sales. In 2022, the amount of coal production increased to 685.24 million tons, while in the previous year, coal production only reached 606.28 million tons (ESDM, 2023). 

 

The increase in coal production in 2022 seems to be followed by an increase in sales of the black gold product. ESDM reported that during 2021, the amount of Domestic sales, export sales and Domestic Market Obligation (DMO) sales were 237.91 million tons, 322.07 million tons and 133.04 million tons, respectively. While in 2022, the amount of domestic, export and DMO sales increased to 242.4 million tons, 332.22 million tons and 215.82 million tons, respectively.

 

The trend of increasing coal production and sales continued in the first and second quarters of 2023. During the first and second quarters of this year, total coal production reached 467.9 million tons and domestic, export and DMO sales were 134.08 million tons, 185.59 million tons and 71.06 million tons, respectively. The details of coal production and sales can be seen in the following table:

If we rewind, the trend of increasing coal production and sales in the last five years began in 2020. At the same time, the Government passed the Job Creation Act, which included a rearrangement of the imposition of VAT on the delivery of coal.

 

Through Law Number 11 of 2020 concerning Job Creation, the Government regulates that the types of goods that are not subject to value-added tax are certain goods in the group of mining or drilling products which are collected directly from their sources, excluding coal mining. This provision is clearly regulated in Article 112 of the Job Creation Act.

 

In the previous provision (Law No. 42/2009), the Government regulated that mining products or drilling results taken directly from the source are types of goods that are not subject to VAT.

 

The change in the imposition of VAT on coal, which was originally not subject to VAT, certainly brings major implications. After the Job Creation Act comes into effect, taxpayers who are engaged in coal mining must register themselves to be confirmed as Taxable Entrepreneurs or Pengusaha Kena Pajak (PKP). Furthermore, the entrepreneurs must make a tax invoice for each delivery of taxable goods and report it in the Periodic Tax Return for VAT.

 

However, we can view this policy from another perspective. With the imposition of VAT on coal delivery, coal mining entrepreneurs can credit Input Tax directly related to mining activities. In fact, according to the previous regulation, coal mining entrepreneurs cannot credit their input tax, even before the entrepreneur makes the delivery of taxable goods or taxable services.  

 

This is regulated in Article 9 paragraph 2a of Law number 7 of 2021 concerning Harmonization of Tax Regulations which states that "For taxable entrepreneurs who have not made delivery of taxable goods and/or services and/or export of taxable goods and/or services, Input Tax on the acquisition of taxable goods and/or services, import of taxable goods and/or services, as well as utilization of intangible taxable goods and/or utilization of taxable goods and/or services from outside the customs area within the customs area can be credited as long as it meets the crediting provisions in accordance with this Law."

 

A Winding Path

The dynamics of imposing VAT on coal is not a new issue in Indonesia. This issue has even arisen since decades ago. It started when the oil crisis occurred in the 70s where the government was "forced" to brainstorm for new sources of energy and financing due to the collapse of the oil boom era.

 

Aware that Indonesia was no longer an oil producing country, the government invited investors to come to Indonesia and invest in the coal industry. The agreement between the Indonesian government and investors in the coal industry was then outlined in the First Generation Coal Contract of Work (First Generation CCoW).

 

There are several agreements concluded in the CCoW, one of which is an agreement in terms of taxation which, among others, regulates that the Company bound by the First Generation CCoW is applicable to six types of taxes, including:

  1. Corporate Tax;

  2. Withholding Taxes

  3. Regional Government Tax;

  4. Sales Tax on services provided to contractors at a maximum rate of 5 percent

  5. Stamp Duty;

  6. Tobacco and liquor excise tax.

 

Since the first-generation CCoW was signed before the 1983 Value Added Tax Law was issued, the companies bound by the first-generation CCoW are not subject to VAT because the nail down principle applies, which means that they are not subject to new tax regulations. However, for companies that signed a work agreement with the government after the VAT Law was issued, the law shall apply to them.

 

In the 1983 VAT law, the government has not specifically regulated the delivery of taxable goods or services that are not subject to VAT. Therefore, the delivery of coal that is not subject to the first generation CCoW is subject to VAT in accordance with this law.

 

The regulation of the delivery of taxable goods or services that are not subject to VAT only appeared in the first amendment to the VAT Law. Through Law Number 11 of 1984 concerning Amendments to Law Number 8 of 1983 concerning Value Added Tax on Goods and Services and Sales Tax on Luxury Goods and Government Regulation Number 50 of 1994, the Government regulates that mining, quarrying and drilling products collected directly from their sources are types of goods that are not subject to VAT. Thus, coal collected directly from its source is not a delivery subject to VAT.

 

In the second and third amendments to the VAT law, the government consistently regulates that mining or drilling products collected directly from the source are not subject to VAT. In fact, this regulation is contained in the body of the second and third amendments to the VAT Law, Article 4A.

 

However, through the Job Creation Act and the Tax Harmonization Law, the Government re-imposed VAT on the delivery of mining products collected directly from the source, including but not limited to coal mining. That is the winding path of the imposition of VAT on coal.

 

Related Regulations

  • Law No. 8 of 1983 concerning Value Added Tax on Goods and Services and Sales Tax on Luxury Goods

  • Law No. 11 of 1994 concerning the Amendment to Law No. 8 of 1983 on Value Added Tax on Goods and Services and Sales Tax on Luxury Goods

  • Law No. 18 of 2000 concerning the Second Amendment to Law No. 8 of 1983 on Value Added Tax on Goods and Services and Sales Tax on Luxury Goods

  • Law No. 42 of 2009 concerning the Third Amendment to Law No. 8 of 1983 on Value Added Tax on Goods and Services and Sales Tax on Luxury Goods

  • Law No. 11 of 2020 concerning Job Creation

  • Law No. 7 of 2021 on Harmonization of Tax Regulations

  • Government Regulation Number 50 of 1994 concerning the Implementation of Law Number 8 of 1983 concerning Value Added Tax on Goods and Services and Sales Tax on Luxury Goods as Amended by Law Number 11 of 1994

Hello, is there anything we can help?