Commodity Prices Surge Again, Potential Revenue Missed Once More: Indonesia Needs a Windfall Tax
Every time global oil prices rise significantly, the burden of fuel subsidies swells. As a net oil importer with lifting of around 600,000 barrels per day but consumption of 1.6 million barrels per day, Indonesia faces a recurring dilemma: upstream sector revenues do indeed rise, but without a windfall capture instrument, much of the economic rent slips away from the state coffers.
The US blockade of the Strait of Hormuz since 13 April 2026 temporarily pushed Brent above US$100 per barrel; HBA rose to US$103.43 per tonne in Period II of April 2026. This pattern repeats. In 2022, Newcastle Coal surged 486 percent from 2020 levels; coal companies’ margins shifted from minus 0.60 percent in 2020 to 22.43 percent in 2021. At that time, Indonesia also lacked a windfall tax instrument.
How large is the lost potential? A counterfactual simulation in the policy brief shows that in 2022, when commodity prices peaked, PRRT could have added revenues of around Rp223 trillion (Rp192 trillion from coal, Rp31 trillion from oil and gas), equivalent to 1.14 percent of GDP. On average from 2017 to 2024, the uncaptured potential reached Rp67 trillion per year.
The root problem is the royalty regime based on gross revenue (price times volume), not profit. In 2022, when coal prices hit US$345 per tonne, the state only captured 10-15 percent of the economic rent. Conversely, in 2020, when prices fell to US$61 per tonne, royalties eroded company margins by 30-80 percent of the rent.
The government does not optimally capture economic rent during high prices, while during low prices, the gross revenue-based royalty pressures the already thin margins of companies.
The analysis in the policy brief calculates the sectoral elasticity of non-tax state revenues from natural resources to commodity price changes over the 2013-2023 period, as well as aggregate counterfactual simulations using realised non-tax state revenues from natural resources, oil and gas cost recovery contracts, and reference commodity prices from 2009 to 2023 to estimate potential revenues if PRRT had been in place. From this analysis, there are four main findings.
- PRRT only levies when prices are high.