Windfall Tax on Extractive Firms Could Boost Indonesian State Revenue by Trillions, Celios Says

The Center of Economic and Law Studies (Celios) has put forth a compelling argument for the implementation of a windfall tax on Indonesia's extractive industries, a move that could substantially bolster state revenue. As highlighted by Celios researcher Jaya Darmawan, this additional levy on extraordinary profits, often driven by global geopolitical dynamics and commodity price surges, is not about double taxation but about ensuring the state shares in unexpected gains.

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The bad news is, it is currently on hold by the government.

Celios points to international precedents, citing the United Kingdom, Italy, and India as countries that have successfully implemented similar taxes. The UK's phased approach, increasing its energy company windfall tax from 25% to 38%, demonstrates its utility in stabilizing fiscal deficits and funding social subsidies. For Indonesia, this could mean a significant injection of funds, with estimates suggesting a 25% tax on coal exports alone could yield up to Rp66 trillion annually. Furthermore, potential revenue from nickel, particularly from unprocessed output, and a proposed 2% tax on the nation's 50 wealthiest individuals could add upwards of Rp93 trillion, according to Celios's analysis.

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When there is an unexpected increase in net profit, it should also be shared with the state. So, it is not double taxation.

While Celios acknowledges that the government has placed this proposal on hold, the think tank emphasizes the potential benefits for easing growing fiscal pressures. The argument is particularly relevant given Indonesia's reliance on natural resources and the need for robust revenue streams to fund development and social programs. The proposal to tax the ultra-wealthy, whose fortunes are often tied to the extractive sector, further underscores Celios's focus on equitable wealth distribution and fiscal responsibility.

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Based on an assumed 25 percent windfall tax on coal exports and an exchange rate of Rp17,324 per US dollar, Jaya estimated that taxes on unexpected income from coal companies could generate up to Rp66 trillion in annual state revenue.

From our perspective at Tempo, this discussion is crucial for Indonesia's economic future. While the government's hesitation is noted, the potential for substantial revenue generation through windfall and wealth taxes cannot be ignored. These measures offer a path towards greater fiscal resilience and could fund critical initiatives, including those related to the energy transition and social welfare, without solely burdening the general populace. The international examples cited by Celios provide a strong basis for considering such policies within the Indonesian context.

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From an estimated output of around 2.2 million tons per year, about 1.8 million tons — the majority — has yet to be processed.