Newmont Nusa Tenggara, the Indonesian unit of the United States mining giant, is contesting a local government’s new tax on miners designed to boost revenue.
The West Sumbawa regional government, where Newmont’s Batu Hijau gold and copper mine is located, issued a regulation in an attempt to generate around Rp 200 billion ($22 million) to fund its budget.
The regulation, which was passed in October but went into effect on Jan. 1, requires mining companies operating in West Sumbawa to pay the local government a 1 percent levy on sales volume and 1.5 percent on goods and services procurement.
Newmont, the largest miner in the area, said the local government did not consult with mining companies before passing the regulation and vowed to file an objection.
“The commission fee is not stated in our 1986 working contract. We will seek clarification from the local government on this matter,” Kasan Mulyono, a company spokesperson, told the Jakarta Globe on Thursday.
He said a 1 percent commission may be a small amount for a company that $2.6 billion in revenue through September last year, but money is not the issue.
“This matter is not affecting our bottom line or our production activity. We question why the local government applied a regulation which overlaps a rule issued by the government on the provincial level,” Kasan said. “We operate here by abiding by the government’s regulations and the working contract. We believe that this matter can be resolved with good will as soon as possible.”
Zulkifli Muhadli, the Sumbawa regent, told local media on Wednesday that he was in a difficult spot in the matter.
“The people want me to apply the regulation, and the regional House of Representatives has given me their support to shut down NNT’s operation should they refuse to comply. But this is not the solution. It is the last option that I would take,” he said, adding that he preferred to keep lines of communication open with NNT.
Agus Pian Wahab, a mining law observer, told state news agency Antara that the regent’s regulation ignored a higher regulation at the provincial level, Law No. 28/2009 on regional tax.
Agus said the regent’s office could not collect money because it had already been regulated at the provincial level, and he advised NNT and the regent’s office to resolve the problem in the Constitutional Court.
Overlapping regulations between the central and local governments are one of the factors that discourage investment as it causes uncertainty and extra expense to bypass red tape.