Taxation Provisions for the Coal Mining Business

Taxation Provisions for the Coal Mining Business


20 May, 2024 10:05 WIB

In its latest report, the Central Bureau of Statistics or Badan Pusat Statistik (BPS) (2024) stated that there has been an increase in coal production during 2014–2022. Despite a decline in 2020 due to the COVID-19 pandemic, coal production increased again in 2021. The details of coal production in Indonesia are in the following curve:


Source: BPS, 2024


Based on the graph above, we can see that coal production reaches its peak in 2022. The increase in coal production in 2022 is partly due to high global demand and rising coal commodity prices as a result of the changing geopolitical conflict between Russia and Ukraine. 


However, the increase in coal commodity prices did not last forever. In the first quarter of 2024, the Ministry of Finance reported that there was a decline in coal commodity prices. This price decline led to a slowdown in tax payments. The contraction in early 2024 was due to a contraction in tax deposits from the coal mining sector by 60.1% (Kontan 2024). Then, how exactly are the tax collection provisions for the coal mining sector? This article will discuss the sector income tax provisions that contribute to state revenue. 


Also Read: Getting to Know the Concept of Nail-Down and the Prevailing Law in Mining Tax Collection


The main provisions for tax collection on coal are regulated in Law Number 4 of 2009 concerning Mineral and Coal Mining, as amended by Law Number 3 of 2020. Based on these provisions, among others, it is regulated that the amount of tax collected from holders of Mining Business License or Izin Usaha Pertambangan (IUP), Special Mining Business License or Izin Usaha Pertambangan Khusus (IUPK) is determined based on statutory provisions. This provision also implies that the principle of prevailing law applies to the coal mining industry. 


Later on, the provisions of Law Number 4 of 2019 are derived into Government Regulation Number 15 of 2022 concerning tax treatment and/or tax revenue in the coal mining business.


This provision regulates that the tax object in the field of coal mining business includes income received both from the business and income originating from outside the coal mining business.


Income derived from the coal mining business is calculated using the higher coal benchmark price or coal price index at the time of the transaction. In addition, income derived from the business is also calculated using the difference between the actual price and the price that should have been received or obtained by the seller. 


In calculating taxable income, gross income from coal mining businesses is reduced by the costs of obtaining, collecting, and maintaining income under tax provisions, which include: 

  • General investigation activity costs;
  • Exploration activity costs;
  • Feasibility study costs;
  • Production operation costs;
  • Post-mining activity costs;
  • Depreciation and amortization costs;
  • Reimbursement costs or rewards in connection with work provided in kind;
  • Costs incurred in the context of non-tax state revenue obligations;
  • Costs of reclamation reserves;
  • Interest;
  • Donations in the context of disaster management;
  • Donations in the context of research and development;
  • Education facility donations;
  • Donations in the context of sports coaching;
  • Social infrastructure development costs. 


Based on the explanation above, we can see that generally, entrepreneurs who hold mining business licenses and/or special mining business licenses receive special treatment because they can charge costs that cannot be paid by other companies. However, it is necessary to note that mining is a high-risk business, so it requires accuracy in managing tax risks. Therefore, if you need further explanation or information regarding the tax aspects of coal mining, Idetax is the right place for you.


Also Read: Coal Royalty is 0%: Gain or Loss?