TEMPO.CO, Jakarta-Somehow, the government has a talent for implementing policies-however noble and justified-at the wrong place and the wrong time. In pursuing higher non-tax revenue targets to fund its ambitious development projects, particularly its massive infrastructure programs, the Joko Widodo administration is now looking at requiring coal-producing companies to cough up more than Rp25 trillion in unpaid royalties. The push could not have come at a worse time for the coal industry, currently in a slump in both Indonesia and worldwide.
Moreover, coal miners are unlikely to comply with the government's demand when the finance ministry has yet to meet their own claims on overdue tax refunds going back several years. Companies insist they will not be forking out the royalty payments until the government shows some reciprocity over the excess taxes they were compelled to pay in the past.
The ongoing dispute over royalties and tax refunds between the government and the coal miners is causing significant losses to the state. Officials now estimate that royalties due to be paid by the coal sector date back to the industry's boom year of 2007.
According to the prevailing coal contracts of work (PKP2Bs) and mining business permits (IUPs), the government should receive royalties from coal as well as from other minerals. Accordingly, a number of companies holding PKP2Bs have not paid their royalties because many of them are still going through the notoriously time-consuming process of renegotiating their contracts.
Meanwhile, royalties from IUP companies are not being paid because the energy and mineral resources ministry lacks the human resources in the provinces to do all the collecting. Although the permits are issued by local and provincial administrations, the royalties are paid to the central government. So, the difficulty in going about collecting the unpaid monies is not so much a technical issue as it is about who should be paying what.
The government believes the total amount of royalties owed by coal mining companies so far is about Rp17 trillion. But the companies feel they should get their refunds first because of the overpayment of value-added taxes (PPN). In other words, they hit the ball firmly back into the government's court. The government, for its part, is standing just as firmly. And to complicate matters, the two concerned ministries-mining and finance-seem to be doing their own things, with seemingly no coordination between the two.
The root of the problem seems to be Government Regulation No. 144/2000 on the kinds of commodities and services that are taxable. In the case of coal, the regulation stipulates that companies must pay the PPN tax. But after it was issued, there seems to have been a lot of pushing and shoving on whether the PPN should be linked to royalties. Meanwhile, third-generation coal mining concerns, which obtained their contracts of work in 1997, felt they no longer needed to pay the value-added tax, despite the fact that doing so is required in their contracts.
The taxation directorate-general, naturally enough, insists that the third-generation contracts of work are endowed with the lex specialis clause and therefore should not be affected by the government's regulatory changes. This means the government will continue to collect PPN from coal mining companies. In retaliation, the private sector is adamant that it will continue to refrain from paying any royalties.
Understandably, the government cannot afford to lose out in this fiscal dispute. Like it or not, the coal miners must be prepared to meet their obligations in accordance with their contracts of work. But the state must also be fair. According to the coal miners, the differences in interpretation of Government Regulation No. 144/2000 center on its inconsistent implementation because it seems that a significant number of third-generation companies in some regions have been absolved from paying the value-added tax. If this is indeed true, such discrimination must stop.
The regulation must apply to all companies equally. Admittedly, such differences in treatment could be nothing more than a lack of coordination between Jakarta and the provinces. But if effective implantation is to be expected, a thorough scrutiny of the entire process must be undertaken.
Taxes and retribution are important sources of state funding. On the other hand, we also need healthy and strong companies to get the economic wheels rolling. It is of the utmost importance to resolve this royalty dispute to prevent it from dragging on indefinitely-as many other issues tend to do-to the detriment of the country. The mining and finance ministries and, in particular, the directorate-general of taxation must sit down with coal mining executives and seek a concrete solution, perhaps by hiring a qualified and able mediator.
This unfinished business could also impact on the broader issue of attracting new investors to the coal sector. If the rules of the game remain confusing and uncertain, how can we expect any new business? Worse, if such chaotic conditions are allowed to go on, existing companies might just reassess their options and pull up stakes. The government would do well to carry out an honest introspection on why Standard & Poor denied Indonesia investment-grade status in its latest ranking. Part of the reason could well be the regulatory and fiscal uncertainty that bedevils our primary sectors.(*)
Read the full story in this week's edition of Tempo English Magazine
