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The Ministry of Energy and Mineral Resources reported that coal production in 2023 far exceeded the target. Minister of Energy and Mineral Resources, Arifin Tasrif, stated that in 2023, coal production was 775 tons. Meanwhile, the coal production target for that year is 595 tons. Of the total production of 775 tons, 213 tons met domestic needs, and 518 tons were used for export needs (Ministry of Energy and Mineral Resources, 2024).
The Minister of Energy and Mineral Resources mentioned that there are two factors that triggered the increase in coal production: the increase in domestic coal demand and the disruption of other energy supplies. The increase in domestic demand is inseparable from the government's plan to impose a 0% royalty on coal downstream.
Through Government Regulation in Lieu of Law Number 2 of 2022 on Job Creation, the government regulates that Mining Business License or Izin Usaha Pertambangan (IUP) holders can obtain a royalty rate of 0% if they conduct downstream.
The main purpose of the royalty incentive is to encourage downstream, which can add value by increasing employment that will contribute to economic growth. In addition, coal downstream is also intended to provide a multiplayer effect for national and regional revenues, as well as the fulfillment of domestic gas through coal gasification (CNBC Indonesia, 2023).
However, some economists argue that the 0% royalty incentives provision will trigger a decline in state revenue from the Non-Tax State Revenue or Penerimaan Negara Bukan Pajak (PNBP) sector. This provision is estimated to have the potential to reduce state revenues by $33.8 trillion each year. If the incentive is applied for 20 years, the potential decline in state revenue is estimated at 676.4 trillion (Kontan, 2023).
Multiplier effect
Several studies show that downstream provides a multiplier effect for the national and regional economies. Supriyadi et al. (2017), for example, mentioned that the downstream in manganese processing and refining industry sector provides a large multiplier effect, especially for the economy of East Nusa Tenggara. However, in a different study, Supriyadi et al. (2016) mentioned that bauxite downstream has a significant impact on the economy of West Kalimantan.
From that study, we can see that it is possible for coal downstream to create a multiplier effect not only on the economy but also on tax revenue. Particularly after the enactment of the Harmonization of Tax Regulations Act, coal delivery is subject to VAT at 11%. It means that the higher the added value generated from coal downstream projects, the higher the tax revenues.
Furthermore, the coal downstream project will open up opportunities to increase corporate income tax from companies that process coal. In addition, the downstream project will also increase employment, which in turn has an impact on the increase in Income Tax Article 21.
Thus, we can conclude that in the short run, downstream project will decrease the potential of non-tax state revenue from the royalty sector. However, in the long run, downstream has the potential to increase tax deposits from the VAT, corporate income tax, and income tax article 21 sectors.
