Indonesia Must Learn from Australia, Norway, and Timor Leste on Windfall Taxes

Jakarta, CNBC Indonesia - The Institute for Development of Economics and Finance (INDEF) states that Indonesia needs to learn from Australia, Norway, and Timor Leste, countries that implement PRRT (Progressive Resource Rent Tax), also known as windfall tax or durian runtuh tax, from increases in natural resource prices.

According to INDEF, these three countries represent relevant variations for Indonesia’s design: Australia as the oldest and most mature PRRT regime (benchmark maturity based on project).

Then, Norway as a prototype of high-tax accompanied by the world’s largest sovereign wealth fund (upper bound of progressive design). Finally, Timor-Leste as a small economy highly concentrated on one field that instead provides a post-peak warning for countries dependent on extractive rents (regional cautionary tale).

There are three lessons that Indonesia can obtain from these three countries implementing PRRT.

“First, the profitability threshold must be set empirically to be credible for investors without eroding the state’s fiscal space,” quoting INDEF’s Policy Brief on Friday (17/4/2026).

Then second, the loss carry-forward mechanism requires an explicit cap so that the accumulation of deductions does not erode the tax base in long-term projects like LNG.

Meanwhile third, the effectiveness of PRRT ultimately depends on the quality of supporting institutions, namely technical audit capacity, cost data transparency, and a stabilisation sovereign fund separate from operational budgets.

“Without these three pillars, PRRT risks becoming an additional instrument that does not generate significant revenue,” said INDEF.

INDEF itself proposes the implementation of PRRT (Progressive Resource Rent Tax) on Indonesia’s extractive sector broadly (oil and gas and minerals), with parameter adaptations according to commodity characteristics.

PRRT is a tax on economic rent imposed above the threshold of normal rate of return, with progressive tariff layers according to project profitability.

“This proposal stems from the classic dilemma of resource-rich countries: abundant revenue when commodity prices rise, deficits when prices fall. Price volatility is permanent and difficult to predict,” said INDEF.

PRRT imposes additional tax progressively on profits exceeding the normal rate of return from extractive projects.

Every profit exceeding capital costs and exploration risks constitutes economic rent, which is a surplus arising from the scarcity of state-owned resources, not from investor expertise or innovation.

“Different from royalties imposed per unit of production without considering profitability, PRRT is countercyclical. When prices are low and profit margins per unit are thin, the PRRT burden approaches zero. When prices are high and profit margins per unit widen, the rate increases gradually,” writes INDEF.