Indonesia Govt grants Rio Tinto fixed-rate tax for project

The government has agreed to grant a demand from mining company Rio Tinto for a fixed-rate tax facility for its US$3 billion nickel project in Sulawesi, providing leeway for other mining giants to receive similar privileges.

Chairman of the Investment Coordinating Board Muhammad Luthfi told reporters Monday the government had agreed to provide the company with a fixed-rate tax arrangement, also known as a nail-down tax system.

“The bill on income tax (which is still being deliberated by lawmakers) will support a lower tax environment, in line with the tax rate we have decided to give to Rio Tinto,” Luthfi said.

The tax facility is against the country’s widely-applied prevailing rate system.

Luthfi believes the fixed-rate system will bring more benefits to the government and private investors as tax systems around the world decline, keeping Indonesia competitive as an investment destination.

Under the fixed-rate system, a company is taxed based on certain rates which remain unchanged regardless of amendments to the tax system.

The existing prevailing tax system uses progressive tax rates scaled according to income. The rates under this system are subject to change.

Luthfi said the tax system was one of Rio Tinto’s demands to be agreed upon prior the firm’s deal on a Contract of Work.

Rio Tinto spokesman Budi Irianto refused to comment on the issue, saying the negotiation was still underway.

However, he hinted the negotiations were almost complete.

Rio Tinto is planning to mine nickel in Morowali and Konawe regencies, located on the border between Central Sulawesi and Southeast Sulawesi.

The company is currently battling overlapping concessions with local companies, backed by local administrations that issued the smaller businesses mining licenses to operate on Rio Tinto’s concessions.

Energy and Mineral Resources Minister Purnomo Yusgiantoro pledged to work with the Ministry of Home Affairs to resolve the problem.

Numerous mining projects in the country have run aground due partly to legal uncertainties over the authority of local administrations to manage mining resources, a result of loopholes in existing laws and regulations.

The government and the House of Representatives are currently deliberating amendments to the mining law to better manage the sector and eliminate long-standing loopholes.