Indonesia Considers Mining Tax Hike Amid Fiscal Challenges

Indonesia's Ministry of Energy and Mineral Resources is weighing an increase in mining taxes across various minerals, including copper and coal, as part of a shift from fixed-rate royalties to a price-dependent structure. The proposal, outlined in a public consultation document released over the weekend, comes as the government seeks additional revenue to fund major national policies.

The tax adjustments are being considered as Indonesia works to manage the financial burden of key initiatives introduced by President-elect Prabowo Subianto, including free school lunches and the Danantara National Investment Fund. Following the rejection of a proposed value-added tax increase, ministries have been tasked with budget cuts to support these multi-billion-dollar programs.

The potential tax hike arrives at a challenging time for Indonesia’s mining sector. Nickel and coal, the country’s top export commodities, have experienced sharp price declines, with some producers now contemplating production cuts.

Under the proposal, the current uniform 10% tax on nickel production would be replaced with a variable rate of 14% to 19%, depending on government-determined benchmark prices. Smelter-produced nickel would also see higher taxes. Additionally, royalty fees for tin, copper, and gold production are set to rise under the new taxation framework.