Indonesia’s government is considering raising royalties for the mining sector as part of efforts to address fiscal challenges stemming from President Prabowo Subianto’s ambitious spending plans. The Energy and Mineral Resources Ministry has outlined the proposal in a public consultation document, suggesting increases in levies on a wide range of mined products, including copper and coal. Royalties, which were previously set at flat rates—such as those applied to nickel ore—may now fluctuate in line with market prices.
This move comes as the government faces mounting costs from major initiatives, including the implementation of free school lunches and the creation of the Danantara state investment fund. To finance these multi-billion-dollar projects, ministries have been asked to trim their budgets following a scaling back of a proposed value-added tax hike.
For Indonesia’s vast mining sector, which plays a pivotal role in Southeast Asia’s largest economy, the timing of the royalty hike proposal is challenging. Commodity prices for nickel and coal—the country’s two primary exports—have dropped to multi-year lows, prompting some producers to consider scaling back production.
Under the new proposal, the flat 10% royalty on nickel ore production will be replaced with a tiered system, with rates ranging from 14% to 19%, depending on government-set benchmark prices. Additionally, taxes on smelter-produced products, such as ferronickel and nickel pig iron, will also see increases, further squeezing profit margins. Some smelting plants have already cut output in response to rising costs.
Citigroup analyst Ryan Davis warned that the proposed royalty increases could undermine Indonesia’s competitive edge in the downstream mining industry. He noted that volatile pricing and lower margins could lead to reduced supply, especially as producers face tightening cost pressures.
In addition to nickel, royalties on tin, copper, and gold production are set to rise, while the impact on coal miners will vary based on the type of mining permit they hold. For companies like PT Adaro Andalan Indonesia, the royalty adjustments may result in lower tax rates, according to Davis.
As Indonesia’s government seeks to balance its fiscal needs with the economic challenges facing its mining sector, the outcome of the consultation and the final decisions on these proposed royalty hikes will be closely watched by industry stakeholders.
Related topic:
Aluminium Premium Proposal to Japan Rises 14% Amid Supply Concerns
Iron Ore Prices Stabilize Amid Uncertainty Over China’s Steel Output Plans
China to Cut Steel Production Amid Market Glut and Economic Pressures
