Pursuant to Article 31D of the Income Tax Law, the provisions regarding taxation for the business field of general mining, including coal mining, shall be stipulated through a Government Regulation (GR). On 11 April 2022, the Government enacted the regulation mandated by the Income Tax Law, i.e. GR No. 15 of 2022 concerning Tax and/or Non-Tax State Revenue Treatment in the Business Field of Coal Mining.

This GR is issued to complement Law No. 3 of 2020 concerning Mineral and Coal Mining, in connection with contracts that end which may be extended through a Special Mining Business Permit (IUPK).

This regulation applies to:

1. Holders of IUP (Mining Business Permits);
2. Holders of IUPK (Special Mining Business Permits);
3. Holders of IUPK as Continuation of Contract/Agreement Operations;
4. Holders of PKP2B (Coal Mining Concession Work Agreements/ Coal Contracts of Work) in whose contracts   provisions are stipulated regarding an Income Tax obligation based on said PKP2B; and
5. Holders of PKP2B in whose contracts provisions are stipulated regarding an Income Tax obligation in accordance with the provisions of the laws and regulations in the field of Income Tax.

To calculate the taxable income of mining entrepreneurs under numbers 1, 2, 3, and 5 above, the amount of taxable income is determined based on the gross income less expenses to earn, collect, and maintain income in accordance with the provisions in the Income Tax Law. The expenses that may not be deducted in determining the amount of taxable income also follow the provisions of the Income Tax Law.

Determination of the debt to equity ratio and of loan expense that may be taken into account also follow the provisions of the Income Tax Law.

As for Non-Tax State Revenue (PNBP), GR 15 of 2022 imposes a royalty that is applied progressively. For holders of IUPK as continuation of contract/agreement operations that were originally holders of PKP2B in whose contracts provisions are stipulated regarding an Income Tax obligation based on said PKP2B (number 4 in the list above), the rate ranges from 14% to 28% based on the Coal Reference Price (HBA). Meanwhile, for holders of IUPK as continuation of contract/agreement operations that were originally holders of PKP2B in whose contracts provisions are stipulated regarding an Income Tax obligation in accordance with the provisions of the Income Tax Law (number 5 in the list above), the rate ranges from 14% to 27% based on the HBA.

The issuance of this GR 15 creates a challenge for the coal mining industry, especially since going forward the imposition of the carbon tax will be a new type of tax that also requires attention (The carbon tax takes effect on July 1, 2022).