Potential impact of Indonesia's linkage of 'tax' and 'price' on nickel resources

Following the implementation of Indonesia's revised foreign exchange controls and metal benchmark pricing regulations on March 1, reports suggest that the government is now proposing adjustments to PNBP (non-tax state revenue), with nickel-related resource taxes seeing increases of over 50%.

 

In March 2024, The Indonesia Nickel Miners Association (APNI) conducted a market survey on potential amendments to nickel product resource taxes. Recently, Indonesia's Ministry of Energy and Mineral Resources (ESDM) revisited the proposal, though it has yet to be fully enacted. Overall, Indonesia appears to be aligning nickel taxation with pricing, signaling the formation of a more structured nickel resource management policy.

 

The proposed resource tax adjustments primarily raise taxes on already taxed nickel products -- nickel ore, nickel pig iron (NPI), and nickel matte -- without adding new categories. The proposal does not specify its scope of application, though previous regulations targeted mining permit holders (IUP/IUPK).

 

Under the proposal, the nickel ore tax rate would shift from a fixed 10% to a variable 14%-19% based on HMA pricing. NPI taxes would increase from 2% to 5%-7%, while nickel matte taxes would rise from 2% to 4.5%-6.5%, both also linked to HMA pricing. Additionally, the windfall tax on nickel matte would be removed.

 

Indonesia's Incentive Policies

Indonesia's mineral resource sector, classified as a "pioneer industry," has long benefited from tax incentives, minimal export duties, and a VAT-replacement resource tax system, which aims to attract foreign investment in smelting and trade.

 

Tax Holidays for Pioneer Industries

Companies in designated "pioneer industries" enjoy corporate income tax exemptions (22%) for a set period, with an additional "grace period" after expiration. This policy, overseen by Indonesia's Ministry of Finance, has been key in attracting investment.

 

Resource Tax as a Substitute for VAT

Due to Indonesia's limited domestic demand for non-ferrous metals, VAT enforcement on such products has been lax. Instead, the government has implemented a resource tax (administered by the Ministry of Energy and Mineral Resources) on licensed mining operators. In 2024, nickel resource tax enforcement intensified, with customs authorities auditing production-linked tax invoices upon NPI export clearance. This has led to discrepancies between Indonesia's export data and import records in other countries.

 

Export-Friendly Trade Policies

Indonesia has maintained a 0% export duty on nickel products, similar to other restricted metals like copper and aluminum, to encourage foreign investment. Despite extensive discussions within the government regarding NPI export taxes, no concrete measures have been implemented.

 

While these policies have positioned Indonesia as the global leader in nickel reserves and production, the ongoing global nickel surplus and persistent cost pressures in 2024 have prompted the government to tighten its resource management and industry support policies.

 

Potential Impacts:

If Indonesia fully implements its proposed resource tax adjustments, the cost of nickel ore (with 1.5%-1.9% Ni content) for mining permit holders would increase by $1.5-$2.5/tonne (dry), based on current nickel prices of around $16,500/tonne in Ni content. This would translate to a cost increase of about $560/tonne in Ni content for NPI and $460/tonne in Ni content for nickel matte, while MHP costs would remain unaffected.

 

In 2025, Indonesia's nickel production is projected to consist of 69% NPI, 16% nickel matte, and 15% MHP, with NPI and nickel matte relying on high-grade ore while MHP utilizes lower-grade ore. While NPI profitability improved at the start of the year due to rising ore prices and stronger stainless steel demand, historical trends suggest limited profit margins.

 

Indonesia's nickel sector faces dwindling high-grade ore reserves and a growing need for low-grade ore development. In 2025, the surge in HPAL production has driven up low-grade ore prices, with margins exceeding 100%, whereas high-grade ore prices, despite being historically low, remain profitable.