The Bill of Job Creation Changed the Taxation and Dues on Coal Products



On October 5, 2020, the House of Representatives (DPR) of the Republic of Indonesia has passed the Bill of Job Creation, which received mixed responses from people of various groups. Although the bill's controversies heavily focus on the manpower issues, it has also changed provision of taxation and dues on coal products.


Initially, according to Law No. 8/1983, raw coal is one of the mining products that was exempted from value-added tax (“VAT”). While processed coal, such as coal briquette, is subjected to VAT. Such provision will be changed by the Bill of Job Creation in Article 112 that regulates amendment and insertion of new provisions on Law No. 8/1983. Point 2 of Article 112, amend the provision of certain goods exempted from value-added tax in Article 4A Law No. 8/1983. Now provision Article 4A (2) letter a, regulates that goods of mining or drilling products taken directly from its source are exempted from VAT, excluding coal mining products.


Furthermore, Explanation of Article 4A (2) letter a Law No. 8/1983, provided in the Bill of Job Creation, no longer listed raw coal before processed into coal briquette, as it was used to be listed in Law No. 8/1983. Thus, raw coal will be subject to VAT, which may become effective after President Joko Widodo validates the bill into force.


However, Article 39 of the Bill of Job Creation also amend provisions on Law No. 4/2009 . The amendment made by Bill of Job Creation inserts a new provision of Article 128A into Law No. 4/2009. This new provision grants special treatment on the obligation to pay the state income for mining companies that increase the coal value by coal development and utilization (as stated in Article 102 (2) Law No. 4/2009). The special treatment in adding coal value activities can be in the form of 0% royalty imposition. Albeit, this special treatment will be regulated further by government regulation.


These changes made by the Bill of Job Creation are part of the realization of government plans to encourage industrialization of downstream mining business. Furthermore, the Director of Coal Business Development of the Ministry of Energy and Mineral Resources, Ir. Sujatmiko, states that the government intends to encourage the downstream mining business. Specifically, in coal mining, the government will reward mining companies that engage in downstream activities. Rewards can be given in the form of fiscal and non-fiscal incentives. The fiscal incentives can be given in the form of 0% royalty, as stated in the new provision of Article 128A by the Bill of Job Creation.


While the non-fiscal incentives, Ir. Sujatmiko state that the government provides the non-fiscal incentives in the guarantee for extension of mining business license (IUP) or special mining business license (IUPK), with due regard to the mine's coal reserves. Indeed, the non-fiscal incentives scheme above already has a legal basis accommodated by amendment of Law No. 4/2009, earlier this year. Article 47 letter g regulates that IUP production operation (IUP-OP) of coal mining integrated with development and/or utilization activities is given for a period of thirty (30) years and guaranteed to receive extension for ten (10) years period for each extension after fulfilling requirement set out by the laws and regulations. Nevertheless, the said requirement can be expected to be regulated in government regulation along with the special treatment of coal taxation.