Supreme Court nullifies regulations on coal tax

Fitri Wulandari, The Jakarta Post, Jakarta

The Supreme Court has nullified two government regulations on taxation in the coal mining sector, a move that may increase investment in the sector.

According to a press release issued by the Indonesian Coal Mining Association (ICMA) on Wednesday, the Supreme Court has annulled Government Regulation No. 144/2000 on value-added tax (VAT) and Government Regulation No. 65/2001 on vehicle tax because they contradicted the law.

Government Regulation No. 144 exempts coal from 10 percent VAT. This has long been protested by coal producers as they have to pay VAT when purchasing equipment and other items necessary for production, while they cannot pass this burden on to coal buyers as the commodity is exempted from the tax.

The Supreme Court said the regulation was against Law No. 18/2000 on VAT and luxury tax, which does not mention coal as goods exempted from VAT.

VAT is levied on goods when there is added value in the process of production.

Meanwhile, Government Regulation No. 65/2001 stipulates that vehicles used in mining operations are subject to the same tax imposed on vehicles operating on public roads.

The Supreme Court opined that vehicles operated in remote mining areas should not have vehicle tax imposed on them because they are not used on state highways.

ICMA chairman Jeffrey Mulyono said the association welcomed the ruling by the Supreme Court and hoped the Ministry of Finance would amend the two regulations.

He said many coal companies had been reluctant to expand their mining business here partly because of the two controversial regulations.

Indonesia's coal production is expected to increase from 109.3 tons in 2003 to 119.7 million tons this year on the back of stronger global and domestic demand. Indonesia's coal exports account for up 70 percent of production.