MINISTRY ASKS FOR PROGRESSIVE MINERAL ORE EXPORT DUTY CUTS

By Andi Abdussalam

Jakarta, May 10 (Antara) - The ministry of industry is proposing that progressive cuts in taxes on mineral ore exports be put in place based upon the ongoing development of mining companies' smelters.          The ministry of industry, in a statement on Friday, said it had proposed that the greater the progress a mining firm had made in developing its smelters, the smaller the duties it should pay for its semi-finished mineral exports.          At the same time, the company would be allowed to export larger volumes of mineral ores based on the progress of its smelter's development.          If a company has developed 35 percent of its smelters or it has completed feasibility studies and groundbreaking for smelters, a company could receive an export duty cut of 20 percent, with concentrate exports limited to 30 percent of its production capacity.          If the construction of the smelter has reached 85 percent, or has entered the commissioning phase, the tax export the company will pay for its mineral exports will be lowered to 15 percent, and the limit of its export volumes can be raised to 50 percent of its production capacity.          Further, a mining company can receive a reduction of up to 10 percent on its mineral export tax and export volumes of up to 60 percent if the development of its smelters has been 90 percent completed.          Based on the proposal, the mining company will pay a zero rate on its exports, if the development of its smelter has been completed and it will no longer be allowed to export semi-finished minerals, because the company is able able to purify its raw minerals with its own smelter.            Based on Law No. 4/2009 on Mineral and Coal Mining, all raw minerals were to be processed In Indonesia before they are exported, starting on January 12, 2014. To that end, mining companies were required to build smelters to process mineral resources at home before being exported.          However, by January 2014 mining companies at home were not ready to operate their smelters, causing a drop in the country's mining exports.          The central bank (Bank Indonesia/BI) had earlier predicted that the ban on the export of unprocessed minerals would reduce mineral exports in 2014 by US$1.8 billion.          However, the result of the latest calculation indicated the new law might reduce mineral exports by US$3.8 billion.          According to information from the ministry of energy and mineral resources, in the January-October 2013 period Indonesia exported 465 million tons of nickel ore, 16.11 million tons of iron ore and sand, 47.01 million tons of bauxite and 1.02 million tons of copper concentrate.          The banning of raw mineral exports would temporarily reduce state revenues by about US$4 billion and has the potential to increase the country's trade deficit.          Indonesia's processed mineral exports stand at US$4.9 billion. The new law might lead to a decline in unprocessed mineral exports in 2014, which could lead to a decline in overall exports.  The decline in unprocessed mineral exports could also affect the country's trade balance.         In the first quarter of 2014, the country's economy grew beyond expectation, to 5.21 percent year-on-year.  According to Finance Minister Chatib Basri, Indonesia's exports contracted following the ban of raw mineral exports.         The same view was also voiced by Chief Economic Minister Hatta Rajasa. He said the contraction was partly a result of the ban on mineral ore exports.         The government initially allowed only finished mineral products to be sold overseas as a consequence of the implementation of the controversial 2009 Mining Law, which requires all miners to process their mineral ores locally, before exporting.          But the government then decided to relax the regulation by allowing exports of semi finished products, such as concentrates, with a progressive export tax until 2017, after threats of massive layoffs and economic losses from mining giants.          In order to allow mining companies to carry out exports on semi-finished minerals, while waiting for the completion of their developing smelters, the government issued a ministerial regulation to that effect, the Finance Minister's Regulation No. 6/PMK.011/2014.          Through the finance minister's regulation, mining firms are asked to pay progressive export taxes at a rate between 20 percent and 60 percent in the 2014 - 2016 period.          However, mining companies, including the US-based mining firms PT Freeport Indonesia and PT Newmont Nusa Tenggar, voiced objections to the new ruling as the regulation allowed producers to export mineral ore after they finish at least 60 percent of the construction of their smelters in six months.      In addition, the energy and mineral resource ministry would provide export recommendation only when producers provide 5 percent of the smelter investment as a guarantee.           Thus, the ministry of industry is proposing progressive cuts with its latest tax formula.           Chief economic minister Hatta Rajasa said last month that the imposition of the export tax on mineral exports was designed to encourage mining firms to speed construction of their smelters.          "This is an effort to force companies in accelerating the development of their smelters," Hatta said.          He said that if companies were able to build their smelters quickly and complete them before 2017, the government would cut export taxes up to zero percent, from the previously level of between 20 percent and 60 percent.          The minister, therefore, called on mineral companies to boost the development of their smelters and the government, in turn, would offer help to facilitate the tax reduction. "We call on them to accelerate smelters development. There should be no constraints in the construction of smelters," asserted Hatta.          The minister said there were four to five mining firms which had commitments to develop smelters, with an investment estimate of about US$1 to US$2 billion each.          According to a central bank official, the accelerated development of smelters and the issuance of mineral export permits may boost the nation's economic growth, which slowed in the first quarter to 5.21 percent.          "The problems arising from the implementation of the mineral and coal mining law can be overcome. Should we accelerate the development of the smelters to resume exports?" Bank Indonesia Deputy Governor Perry Warjiyo asked here on Friday.           Mineral exports could be increased if the government shortened the licensing process, he said.***2*** (T.A014/INE/a014) (T.A014/A/BESSR/A. Abdussalam) 10-05-2014 18:58: