Elaborating Tax Aspects in The Mining Sector
Mining is one of the key economic sectors for the Indonesian government. Indonesia’s economy, in addition to being driven by household consumption, is also influenced by the export of mining commodities.
According to data from Statistics Indonesia (BPS), the Gross Domestic Product (GDP) of the mining and quarrying sector grew by 2.03% year-on-year in the second semester. However, when compared to the overall GDP growth rate of 5.12% in the same period, the mining sector’s contribution to growth was only 0.14%.
The performance of the mining sector also plays a significant role in national tax revenue. Between 2019 and 2023, the average tax revenue growth in the mining and quarrying sector reached 36.97%. This highlights the importance of understanding the tax aspects of the mining sector.
Like all taxpayers, business actors in the mining industry are subject to various tax administration obligations. These include the requirement to obtain a Taxpayer Identification Number (TIN), as well as calculating and paying tax payable, such as Income Tax and Value-Added Tax (VAT), depending on the nature of their transactions.
Calculating Corporate Income Tax for Mining Companies
The calculation of income tax for mining companies follows the general tax provisions as regulated under the Income Tax Law (UU PPh). According to these provisions, corporate income tax is determined based on the calculation of net income, taxable income, and the applicable tax rates.
Tax Objects for Mining Companies
According to Government Regulation (PP) Number 15 of 2022, as amended by PP Number 18 of 2025, the objects of Income Tax in the mining business sector include income generated from business activities or income earned from the sale or transfer of its production output.
Additionally, income derived from non-operational sources, in any form, constitutes taxable income for mining companies, as per the provisions of the Income Tax regulations.
Calculating Taxable Income for Mining Companies
To determine the amount of income tax payable by a company in the mining sector, taxable income is calculated by subtracting allowable expenses from the gross income that constitutes the tax object. These allowable expenses include those incurred to earn, collect, and maintain the income (known as the 3M principle in Indonesian tax: mendapatkan, menagih, dan memelihara penghasilan).
Deductible Expenses from Gross Income
The types of expenses classified under the 3M principle (expenses incurred to earn, collect, and maintain income) include the following:
a. Expenses related to general survey activities
b. Expenses for exploration activities
c. Expenses for feasibility study activities
d.Expenses for production operation activities
e. Expenses for post-mining activities
f. Depreciation or amortization of expenditures incurred to acquire tangible or intangible assets that are owned and used for 3M-related activities, as well as amortization of expenditures to acquire rights or other costs with a useful life of more than one year
g. Compensation or benefits related to employment or services provided in the form of benefits in kind or non-cash benefits
h. Expenses incurred for obligations related to Non-Tax State Revenue (PNBP)
i. Reclamation reserve costs
j. Interest expenses
k. Donations for national disaster relief
l. Donations for research and development
m. Donations for educational facilities
n. Donations for sports development
o. Expenses for social infrastructure development
Taxpayers in the exploration stage who incur expenditures with a useful life of more than one year may capitalize these costs and amortize them accordingly.
Income Tax Withholding/Collection Obligations
Mining companies also have obligations to withhold or collect income tax, including:
1. Income Tax Article 21
Withheld by the company from salaries paid to employees or income related to employment.
2. Income Tax Article 23
Withheld by the mining company on payments for services such as consultancy or heavy equipment rental.
3. Income Tax Article 4(2)
Collected by the company for transactions related to its operations, such as the lease of land or buildings.
4. Income Tax Article 26
Withheld when the company makes payments to foreign parties.
VAT in the Mining Sector
Referring to Government Regulation (PP) Number 49 of 2022, certain unprocessed mining products (excluding coal) are designated as strategic taxable goods (BKP) that are exempt from Value-Added Tax (VAT).
These unprocessed mining products include goods obtained directly from the source, either through mining or drilling, such as:
- Crude oil
- Natural gas
- Geothermal energy
- Asbestos, slate, semi-precious stones, limestone, pumice, precious stones, bentonite, dolomite, feldspar, rock salt (halite), graphite, granite/andesite, gypsum, calcite, kaolin, leucite, magnesite, mica, marble, nitrate, obsidian, ochre, sand and gravel, silica sand, perlite, phosphate, talc, fuller's earth, diatomaceous earth, clay, alum, trass, jarosite, zeolite, basalt, trachyte, and sulfur.
- Iron ore, tin ore, gold ore, copper ore, nickel ore, silver ore, and bauxite ore.
- Liquefied Natural Gas (LNG) and Compressed Natural Gas (CNG)
Conclusion
The mining sector plays a significant role in both the national economy and state tax revenue. Given the complexity of business activities in this sector, mining companies are required to understand the applicable tax obligations, from corporate income tax (Income Tax Article 25/29), withholding and collection duties (such as under Income Tax Articles 21, 23, 26, and 4(2)), to VAT provisions on specific mining goods.
A solid understanding of tax regulations enables mining businesses to fulfill their administrative obligations properly, optimize compliance, and minimize the risk of penalties. On the other hand, tax compliance in this sector supports sustainable state revenue. (NZR/ASP/HFZ/KEN)
