T

he government has finally agreed to revise the controversial export duty imposed on mineral products amid protests from the country'€™s mining companies, which said that the high duty would lead to the closure of their mining
operations.

Deputy Finance Minister Bambang Brodjonegoro said in Jakarta on Wednesday that the government had in principle agreed to revise the export duty so that mining companies showing strong commitment to building smelters would be able to continue their exports.

The percentage of the export duty to be imposed would be linked to the progress of the construction of the mining companies'€™ smelting facilities. '€œThe higher the stage of construction, the lower the export duty, they have to pay,'€ he said following a coordination meeting held at the office of Coordinating Economic Minister Hatta Rajasa.

In addition to the easing of the export duty, the miners would also be given a tax holiday as fiscal incentives to support the construction of their smelting plants, other officials said.

Bambang said that there would be five stages of smelter construction that would be used as the basis of determining export duties. The first stage will, for example, relate to miners'€™ readiness to put down funds as a guarantee that they are serious about building a smelter.

The Energy and Mineral Resources Ministry said earlier that it had submitted a study proposing that the export duties should not be more than 10 percent, a level that is considered affordable for mining companies.

Earlier this year, the Finance Ministry imposed a progressive export duty '€” an increase from 20 percent this year to up to 60 percent by the second half of 2016. The regulation is part of the government'€™s attempt to ensure that mining companies will no longer sidestep the 2009 Mining Law, which requires them to process their minerals into end products before selling them overseas.

The companies have been given a five-year period until Jan. 12 this year to either work on their own domestic facilities or cooperate with each other to comply with the law. However, mining companies have been reluctant to work on the smelters, saying that to do so would be too costly.

Given the situation and worries that a full ban on unprocessed mineral exports will lead to the closure of mining operations and massive layoffs, the government revised the regulation to allow exports of semi-finished products such as copper concentrates until the end of 2016.

Mining companies have argued that the export duties are too high as their profit margin is only around 15 percent. A number of companies have received the green light from the government to continue their concentrate exports after showing their serious commitment to building smelting facilities. But, none of them have resumed the exports due to the high duty.

 Freeport Indonesia, the subsidiary of US giant Freeport McMoRan Copper & Gold Inc., and Newmont Nusa Tenggara have, for example, received the government'€™s permits to resume their copper concentrate exports, but they have not used the opportunity due to the high export tax.

Meanwhile, Hatta said the government would ensure that mining companies that have already shown their commitment to building smelters would not face obstacles, such as land clearing difficulties.

Apart from easing the export tax, the government is also mulling to give tax allowances and tax holidays to companies working on the smelters, according to Investment Coordinating Board (BKPM) head Mahendra Siregar.