Gold and copper mining giant PT Freeport Indonesia (PTFI) has yet to receive export tax reduction for their copper concentrate export as Indonesian ministers have not agreed on the percentage of the company’s smelter progress in Gresik, East Java.
Based on the Finance Ministry Regulation No. 98/PMK/010/2022, Freeport has the right to secure 5% export duty tariff for the physical construction progress less than 30% of the total construction, an export duty tariff of 2.5% for physical construction progress of less than 50% of the total construction and an export duty tariff of 0% for physical construction progress of more than 50% of the total construction.
A source within the mining industry told Indonesia Business Post revealed that Coordinating Minister of Maritime Affairs and Investment Luhut Binsar Panjaitan and Minister of Energy and Mineral Resources Arifin Tasrif have objected the progress of the smelters claimed by PTFI.
“Meanwhile, Finance Minister Sri Mulyani Indrawati has agreed with the assessment,” the source said on December 2, 2022.
Contradicting claims
PTFI is developing a smelter that can turn copper concentrate into cathodes with a capacity of 1.7 million tons per year. The smelter will cost about US$3 billion. The funds for the smelter would come from a loan and the company’s equity. Freeport’s Corporate Communication VP Riza Pratama had said the firm raised overseas bonds for the project. Meanwhile, PT Chiyoda International Indonesia is the contractor for this project.
As of July 2022, PTFI CEO Tony Wenas said the physical progress of the smelter already reached 36.2%.
However, according to the source, a team established by the Coordinating Ministry for Maritime Affairs and Investment assessed the smelter progress and found out that the claim was untrue, as the progress has not reached 30%.
Tasrif did not trus Freeport’s claim either.
“The coordinating ministry for maritime affairs and investment and the energy and mineral resource ministry have been ‘deceived’ by Freeport Indonesia. Why didn’t they build the smelters since a long time ago from 2009 to 2020? What have they done? Nothing,” the source said.
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Freeport Indonesia, the source said, calculated the progress of the smelter based on the amount of fund that has been spent for the project, which was 34.2%. Meanwhile, the ministries see that the physical construction of the smelter has not achieved 34.2%. “They are in debate whether the progress has reached 34.2% or not,” he explained.
The Post has not received any response from Freeport Indonesia over the matter.
Cross sectoral coordination
Executive Director of ReforMiner Institute Komaidi Notonegoro has a different opinion. He said Indonesia was experiencing a cross sectoral coordination problem. The energy and mineral resources ministry and the industry ministry have a mission to promote the smelter construction project progress. In addition to this, the ministries have endorsed the regulation.
“The finance ministry’s key performance indicator (KPI) is to achieve its goals, which are tax and non-tax revenues (PNBP). The ministry has yet to demonstrate a willingness to replace the smelter tax,” he added.
The issue cannot be delegated to the finance and the energy and mineral resources ministries. It should be handled at the upper level.
”Therefore, it is necessary for the coordinating minister to be involved in coordinating this issue since it is a cross sectoral issue. The energy and mineral resources ministry and the industry ministry are interested in establishing a smelter as soon as possible. In contrast, the finance ministry has a different interest in achieving its tax revenue target, “ Notonegoro explained.
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Indonesia’s 2022 State Budget is projected to have a deficit between IDR 850 trillion and IDR 900 trillion. The state spending will amount to around IDR 3,000 trillion in 2022 while the state revenue will be IDR 2,000 trillion.
“The state’s budget deficit would be much higher by granting Freeport’s tax reduction [incentive]. In 2023, the global economy will experience a crisis. As a result, multiple factors contribute to the finance ministry needing to comply with its regulations,” Notonegoro pointed out.
Finance Ministry official Febri Ardian Pangestu refused to comment on the issue of the smelter tax reduction. “I am unable to comment on that matter,” he said.
