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Indonesia plans new tax on thermal coal exports from August 8

The Indonesian government plans to levy a new tax on thermal coal exports from next month, a move that will hit miners already grappling with weak prices hard, sources said.

This comes close on the heels of another government regulation making it mandatory to use the local currency for inland transactions that came into effect on July 1.

The government has proposed a 1.5% tax on the export value of the coal, sources said.

The new tax would be levied on IUP holders -- or Izin Usaha Pertambangan which means individual holders of mining licenses -- to bridge the gap between the tax paid by IUP holders and those companies holding another type of mining license called Coal Contract of Works or CCoW, said Supriatna Suhala, executive director of Indonesian Coal Mining Association.

The CCoW holders currently pay a corporate tax of 45% and royalty of 13.5%, while IPU holders pay a corporate tax of 25% and royalty tax of 3-4%, he added.

Several miners have, however, voiced concerns about its implementation.

An Indonesian producer said the tax might be levied on FOB prices on per metric tonne basis, but was unsure whether the government planned to provide any interim relief.

There was "a lot of ambiguity" surrounding the new tax, Bill Sullivan of Indonesian law firm Christian Teo Purwono & Partners said.

Sellers might have to pay the new tax in advance, similar to the coal royalty now, prior to shipping cargoes, he added.

This makes it more difficult for IUP holders as the government has also made it mandatory for coal and other mineral export transactions to be backed by letters of credit and the proceeds collected through Indonesian banks, he said.

"The situation would not be comfortable for the small to mid-sized miners as they are already struggling with low prices," Suhala said.

"This is another burden [on Indonesian coal suppliers]," Sullivan said, adding that during an industry gathering in Bali last month, officials had mentioned that the government was still considering the merits of imposing a tax on coal exports.

Meanwhile, an Indonesian trader said that he expected the proposed implementation of the new tax to be postponed or at least exempt coal from the list of taxable products on resistance from coal suppliers.

TRANSACTIONS IN IDR

Since July 1, the government had asked miners to conduct all domestic transactions -- from production to transporting coal to ports -- in the local currency.

"Although it seems to be a very normal process, it would not be very easy to implement," Suhala said.

The Indonesia-based trader said mining companies had procured loans for expansion from foreign creditors as they offer cheaper interest rates of around 2-3% compared with about 8% by local financiers.

"Another problem that arises is when miners have to pay back their loans in US dollar as the local currency has weakened against the greenback," he said.

Suhala said this would increase the exposure for Indonesian miners to the currency exchange volatility. Mining companies would now have to hedge at an additional cost, he added.

source: http://www.platts.com