Resource royalty tax on timber firms to be raised

JAKARTA (JP): The government is to raise the resource royalty provision rates imposed on the country's timber companies to 10 percent from 6 percent of timber sales as part of its agreement with multilateral lenders.

Minister of Forestry and Plantations Muslimin Nasution told journalists on Monday the 10 percent rate was much lower than 17.5 percent demanded by the World Bank and the International Monetary Fund (IMF).

"After long and tough negotiations, the World Bank finally agreed to set the resource royalty provision as high as 10 percent," he said.

But he did not reveal when the new tariff would be made effective.

The increase in resource royalty provision is one of the requirements for the disbursement of the Bank's US$1.1 billion loans for the country.

The World Bank said the current tariff was too low, making the government's receipts from forest resources too small.

But Muslimin said the tariff proposed by the IMF and the World Bank was too high and would place a heavier burden on local timber companies currently facing hardships.

He said the country's concessionaires were facing financial difficulties due to high interest rates.

Director General of the Utilization of Forest Production Waskito Soerjodibroto said such an increase in royalty would raise timber companies' production costs which in the end would increase prices of logs.

"Timber companies are also obliged to pay various levies. A sharp increase in their production costs will result in the increase in prices. It will then make our products less competitive on the international market," he said.

Eventually, it would encourage illegal timber trade, he said.

In addition to resource royalty provisions and concession fees, timber companies are still required to pay reforestation funds to encourage them to manage forests in an environmentally sustainable manner.

The government introduced the provisions, or rent taxes, on the country's timber companies from May last year to replace mandatory forest royalties.

The resource royalty provision is imposed on every cubic meter of logs felled from the country's forests to comply with the government's earlier agreement with the IMF on the fund's multi- billion bailout package.

The resource royalty provision is based on standard selling prices for wood, which are determined by the Ministry of Industry and Trade after taking into account prices on the domestic and international markets.

The rate of the resource royalty provision depends on the type of product and its origin.

According to Government Regulation No. 59/1998, dated May 5, 1998, forest concessionaires are liable to rent taxes, ranging from zero to 6 percent of timber sales.

The government currently imposes a tax of 6 percent per cubic meter on big diameter logs such as meranti and mixed jungle wood from Sumatra, Kalimantan, Sulawesi, Maluku, Irian Jaya and East Nusa Tenggara.

A 6-percent tax per cubic meter is also imposed on specialty wood, such as teak, ebony, and sandalwood. It is also imposed on every ton of large diameter rattan such as pulut, manau and tohiti, while a zero-percent tax is charged on small-diameter rattan such as sega.

The government imposes a 1-percent tax for every cubic meter of wood with a diameter less than 30 centimeters.

The government charges a 5-percent tax on wood from industrial forests, such as pine, acacia, balsa and sengon.

The floor prices of big diameter logs such as 'meranti' from Sumatra, Kalimantan, Sulawesi and Maluku are set at Rp 640,000 (US$75.3) per cubic meter, while those from Irian Jaya, East and West Nusa Tenggara, Bali and East Timor are Rp 530,000 per cubic meter. (gis)