Coal Prices Surge: Income Tax Based on Contract or Benchmark Price?
Question:
ALLOW me to introduce myself. My name is Dinyo from Samarinda. I am a tax staff member at a coal mining company that recently obtained a production operation mining business licence (izin usaha pertambangan operasi produksi/Production Operation IUP in Indonesian). Our company sells its coal production output to a trading company that is an affiliate. The sale price is based on a contract at an agreed price.
Recently, coal prices have risen rather drastically, causing the contractual coal sale price to fall below the market price and the reference price set by the government. My question is: may our company continue to use the coal price under the existing contract to calculate the income that constitutes the income tax object? I would appreciate your guidance. Thank you.
Dinyo, Samarinda.
Answer:
Thank you for your question, Mr Dinyo. Recent global geopolitical developments have triggered a surge in energy commodity prices, including coal. In this regard, the Ministry of Energy and Mineral Resources (Energi dan Sumber Daya Mineral/ESDM in Indonesian) has also set the coal reference price (harga batu bara acuan/HBA in Indonesian) for Period II of June 2026 at USD123.91 per tonne. This price represents an increase of approximately 20% compared with the figure at the beginning of this year, which stood at only USD103.3 per tonne.
In practice, this increase will have a direct impact on the calculation of income constituting the income tax object, as your company is currently experiencing. Before discussing the income tax aspects of coal mining businesses, we first need to understand the terminology used in coal price assessment.
For this purpose, we must refer to the Minister of Energy and Mineral Resources Regulation No. 7 of 2017 concerning Procedures for the Determination of the Benchmark Sale Price of Metallic Minerals and Coal, as last amended by the Minister of Energy and Mineral Resources Regulation No. 11 of 2020 concerning the Third Amendment to Minister of Energy and Mineral Resources Regulation No. 7 of 2017 on rocedures for the Determination of the Benchmark Sale Price of Metallic Minerals and Coal (MoEMR Reg. 7/2017, as last amended by MoEMR Reg. 11/2020).
Principally, there are two terms used in coal price assessment, namely the coal benchmark price (harga patokan batu bara/HPB in Indonesian) and the coal reference price (harga batu bara acuan/HBA in Indonesian). Pursuant to Article 1 number 8 of MoEMR Reg. 7/2017, as last amended by MoEMR Reg. 11/2020, the coal benchmark price is the coal price determined at a sale point on a free on board basis.
On the contrary, the coal reference price is the price derived from the average coal price index of the preceding month, as defined in Article 1 number 9 of MoEMR Reg. 7/2017, as last amended by MoEMR Reg. 11/2020.
Please also note that the coal benchmark price is a price determined on the basis of coal quality, with the coal reference price serving as one of its constituent variables, as regulated under Article 8 paragraphs (2) and (3) of MoEMR Reg. 7/2017, as last amended by MoEMR Reg. 11/2020. This implies that the coal reference price influences the magnitude of the coal benchmark price, such that a surge in the coal reference price may result in a corresponding increase in the coal benchmark price.
Accordingly, it should be understood that the coal benchmark price and the coal reference price are not the same term. The coal reference price is a market reference price set periodically by the government, whereas the coal benchmark price is a benchmark price adjusted to coal quality, the calculation formula of which is also determined by the government.
In this case, companies holding a production operation mining business licence are required to use the coal benchmark price as the reference when selling their production output, including sales to affiliates. This is affirmed under Article 2 paragraph (2) of MoEMR Reg. 7/2017, as last amended by MoEMR Reg. 11/2020.
As such, where the sale price is lower than the coal benchmark price, which price is used to calculate the income constituting the income tax object?
To answer this, we must refer to Government Regulation No. 15 of 2022 concerning the Tax Treatment and/or Non-Tax State Revenues in the Coal Mining Business Sector, as amended by Government Regulation No. 18 of 2025 on the Amendment to Government Regulation No. 15 of 2022 on the Tax Treatment and/or Non-Tax State Revenues in the Coal Mining Business Sector (Gov. Reg. 15/2022, as amended by Gov. Reg. 18/2025).
First, it should be understood that income constituting the taxable object in the mining business sector includes business income and non-business income. This is explained in Article 4 paragraph (1) of Gov. Reg. 15/2022, as amended by Gov. Reg. 18/2025. Business income constitutes income derived from the sale of products, as affirmed in Article 4 paragraph (2) of Gov. Reg. 15/2022, as amended by Gov. Reg. 18/2025.
Further, the provisions on the calculation of business income constituting an income tax object are stipulated under Article 4 paragraph (3) of Gov. Reg. 15/2022 as amended by Gov. Reg. 18/2025, which reads:
"(3) For the business income referred to in paragraph (2), the calculation must use the higher price between:
- the coal benchmark price, which constitutes the floor price for the sale of Coal at the time of transaction; and
- the actual price or the price that should be received or accrued by the seller."
Pursuant to the above provisions, it can be observed that the basis for calculating business income constituting the income tax object is the higher price between the coal benchmark price at the time of the transaction and the actual price or the price that should be received by the seller.
Please note that the actual price is used where the transaction is not influenced by a special relationship or affiliation, whereas the arm's length price is used where the transaction is influenced by a special relationship or affiliation. This is set out in the elucidation of Article 4 paragraph (3) subparagraph b of Gov. Reg. 15/2022, as amended by Gov. Reg. 18/2025.
Referring to the earlier question, where the sale price of your company's coal products is lower than the coal benchmark price at the time of the transaction, the coal benchmark price must be used in calculating the business income that forms the basis for the imposition of income tax.
As an illustration, suppose the coal benchmark price for a particular product at the time of the transaction is USD120 per tonne, whilst the contract price to the affiliate is locked in at USD100 per tonne. Since the contract price is below the coal benchmark price, the higher price is the coal benchmark price. Consequently, the business income that forms the income tax base is calculated using the coal benchmark price, namely USD120 per tonne.
The use of the coal benchmark price as the basis for calculation when the contract price falls below it is further affirmed in its implementing provisions. This affirmation is set out in the Minister of Energy and Mineral Resources Decree No. 268 of 2025 on Guidelines for the Determination of the Benchmark Price for the Sale of Metallic Mineral and Coal Commodities (MoEMR Decree 268/2025).
Referring to the Fourth Dictum of MoEMR Decree 268/2025, in the event that a licence holder sells coal based on a contract below the coal benchmark price, the coal benchmark price shall continue to be used in calculating tax obligations and shall constitute the base price for the imposition of production contributions.
Accordingly, it may be concluded that the income constituting the income tax object is calculated based on the higher price between the coal benchmark price and the actual or arm's length price. Where the actual or arm's length price is higher than the coal benchmark price, that price may be used. However, where the actual or arm's length price is below the coal benchmark price, the coal benchmark price must be used as the basis for calculating the income constituting the income tax object.
Kindly note that, given that your company's transactions are influenced by a special relationship (affiliation), the contract price must be confirmed to comply with the arm's length principle (ALP).
The ALP provisions are further stipulated under the Minister of Finance Regulation No. 172 of 2023 concerning the Application of the Arm's Length Principle to Transactions Influenced by a Special Relationship (MoF Reg. 172/2023).
As a final note, it should be emphasised that the use of the coal benchmark price as the basis for calculating income does not in itself fulfil the ALP obligation. The two constitute separate obligations, thus, sales transactions with affiliates must continue to be tested in terms of compliance with the ALP and documented pursuant to the provisions set out in MoF Reg. 172/2023, irrespective of whether the coal benchmark price has already been used as the basis for calculating income.
That concludes the answer we are able to provide. We hope this is helpful.
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