The Indonesian government plans to increase the value-added tax (VAT) rate from the current 11% to 12%, which is expected to elevate operational cost and lead to higher coal prices, Kontan reported.

The increase in production costs will weaken the competitiveness of Indonesian coal in the export market, and importers may turn to other countries offering more competitive prices, threatening Indonesia's coal export revenue, according to Rizal Kasli, head of the Indonesian Engineers Association (PII) Mining Bank, on December 17, 2024.

The policy may also dampen interest in new investments and capital goods purchases, according to Gita Mahyarani, acting executive director of the Indonesian Coal Mining Association (APBI).

Executive Director of the Indonesian Mining Association (IMA) Hendra Sinadia highlighted the increase in input VAT costs, pressure on the company's cash flow, and the potential for delays in VAT refunds.

The policy is expected to affect the entire supply chain, from production, distribution, to marketing. Cost of fuel, equipment and materials may increase, leading to thinner profit margins and weakening global competitiveness, according to Rizal Kasli.

In addition, rising logistics costs, outsourced labor costs and infrastructure costs will also increase the burden on companies, he added.

Industry insiders have unanimously called on the government to reconsider the tax increase plan, fearing that the mining industry, an important source of foreign exchange for Indonesia, will slow down. If the policy is not adjusted, Indonesian coal mining industry may lose international market position and face the risk of losing foreign exchange and new investment, Kontan reported.