Has Indonesia Already Implemented the 'Windfall' Tax? Here's the Fact

The Institute for Development of Economics and Finance (INDEF) proposes the implementation of PRRT (Progressive Resource Rent Tax) across Indonesia’s extractive sectors (oil and gas and minerals and coal), with parameter adaptations suited to commodity characteristics. PRRT is a tax on economic rent (windfall tax) or ‘sudden fortune’ tax levied above the threshold of normal rate of return, with progressive rate layers according to project profitability. “This proposal stems from the classic dilemma of resource-rich countries: abundant revenues when commodity prices rise, deficits when prices fall. Price volatility is permanent and difficult to predict,” quoting INDEF’s Policy Brief on Friday (17/4/2026). PRRT imposes additional progressive taxes on profits exceeding the normal rate of return from extractive projects. Any profit exceeding capital costs and exploration risks constitutes economic rent, a surplus arising from the scarcity of state-owned resources, not from investor expertise or innovation. “Unlike royalties levied per unit of production without considering profitability, PRRT is countercyclical. When prices are low and per-unit profit margins are thin, the PRRT burden approaches zero. When prices are high and per-unit profit margins widen, rates increase gradually,” writes INDEF. Has Indonesia already implemented PRRT? INDEF notes that Indonesia has a framework for progressive royalties, although not a true windfall tax. PP 18/2025 applies progressive coal royalty rates based on Reference Coal Price (HBA), calorific value, and mining method, ranging from 6-13.5 percent for open pit and 5-12.5 percent for underground mining. PP 19/2025 replaces the flat 10 percent royalty for nickel ore with a progressive 14-19 percent based on Reference Mineral Price (HMA), with a special 2 percent rate for low-grade ore to support the domestic electric vehicle industry. INDEF states that both regulations remain based on gross revenue (price times volume), not profit. Meanwhile, PRRT differs fundamentally because it is levied on economic rent, namely profit above the normal rate of return. “Optimal taxation theory indicates that profit-based instruments are superior: tax burden rises with margins, so production incentives are not distorted when prices fall, unlike royalties that can force companies to cut production or close mines when margins are thin (Boadway & Keen, 2010),” writes INDEF. The PRRT basis is not accounting margin like Net Profit Margin, but profit exceeding the assumed normal rate of return on assets. “PP 18/2025 and PP 19/2025 do not incorporate national production capacity utilisation as a rate parameter. However, findings of asymmetry in elasticity in the following section show that aggregate capacity becomes a limiting factor when prices are high. The current progressive royalty framework has not yet addressed the root of the windfall capture gap.”