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Indonesia wants to have its mining cake and eat it too, as the country, one of the world’s largest exporters of copper and coal, will speed up a tax on mining exports, the industry minister Mohamad S. Hidayat told Reuters today.
The move comes only a few weeks after the country surprised the global mining community with a new rule – Government Regulation No. 24 of 2012 – which was quietly announced on the mining ministry’s website. The regulation forces all foreign mining companies to sell majority stakes in their mining operations to locals by the tenth year of production.
Now the country, – southeast Asia’s largest economy – is planning to impose a 25% tariff on mineral exports, which increases to 50% next year, to be followed by a ban on mineral exports in 2014.
Indonesia’s government claims these rules are meant to help boost the domestic economy. But the revelation by Reuters that it would be imposed as soon as possible – only a couple of a weeks after authorities dismissed reports of a mining tax being on the works– has already triggered reactions.
In a report released today shortly after the minister declarations, financial market think-tank Standard & Poor’s said it expects its credit outlook on the Indonesian mining sector to remain stable. This is because its ratings on mining companies operating in Indonesia have long factored in the country’s evolving regulations.
According to the document, titled “Indonesia’s Mining Regulations: Will Official Rhetoric Tunnel Its Way To Implementation?,” the government could hike royalty rates or impose additional tariffs for unprocessed ore and coal exports when the renegotiation of existing mining contracts is completed. Yet, a ban on unprocessed ore exports or punitive taxes on the coal sector will likely be delayed or toned down, said the report.
“While it’s unlikely that the government will choke a healthy revenue stream, we expect taxation to go only one way–up,” Standard & Poor’s credit analyst Xavier Jean said.
Jean added that miners in Indonesia could likely absorb royalty rate increases of 5% to 10% without a material weakening in their credit profile.
International miners with local operations, such as Brazi’s Vale SA (NYSE: VALE) and Freeport McMoran Copper & Gold Inc. (NYSE: FCX), won’t be happy. Neither will be foreign trading partners and energy-hungry nations, such as India.
Concerned with the effect the imposition on a coal tax will have on its country, India’s coal secretary, Alok Perti, told Reuters last week “the government will take this up with Indonesia.”
Indonesia, with a population of 240 million is the world’s premier thermal coal exporter and also a tin powerhouse.
5 Comments
Terryjameso
Can one ask with these new taxes will we see better medical services or will we see fatter government pockets.
Raviksinha Ravi
No doubt they are free to do so but it will certainly affect the energy hungry nations like India.
Indonesia too,may feel the heat in non too distsnt future if they impose a ban mindlessly.
Ravi Sinha
David R. (Canada)
It’s called raising the Dimmi tax.
Mdumak
It’s interesting that some developing countries are taking a clear regulationary stance, defining their domestic policy without overly worrying about foreign direct investment. South Africa needs such dicisive leadership
Raviksinha Ravi
Ideally every nation must have a well defined regultionary policy towards its natural resources but it should also keep in mind that in this age of rapid technological advancement it can not grow in isolation without the technology available with the developed nations.Moreover, such decesions are also influenced by hidden & larger international geo-political agenda .
Instead of enforcing a total domestic control over the mines abruptlly or hurriedly,
it must give ample time to the overseas operators to gradully give up ownership in a phased manner.Ofcourse care should be taken that the resources are not mined out recklessy during the transition period.
Ravi Sinha