Indonesia raises mining taxes, with the largest increase in the nickel industry; giants warn: it may lead to production cuts or shutdowns!

The Indonesian government has significantly increased mining taxes, with the tax rate for the nickel industry jumping from 10% to a range of 14%-19%. Industry insiders have stated that the increase in mining taxes is untimely and warned that some mining companies may be forced to reduce production or even cease operations.

On April 29, the Financial Times reported that the Indonesian government raised the royalty tax rates for nickel, coal, copper, gold, and other minerals over the weekend, affecting some of the world's largest mining groups, including Vale SA and Freeport-McMoRan.

The report noted that the tax rate for the nickel industry saw the largest increase, with rates adjusted from a fixed level of 10% to a range of 14% to 19% depending on nickel prices. It is worth mentioning that Indonesia is the world's largest producer of nickel, which is an important raw material for stainless steel and electric vehicle batteries.

Hendra Sinadia, executive director of the Indonesian Mining Association, warned that "this is an additional burden, especially since the regulation was introduced during a period of declining commodity prices." He further pointed out:

Operating costs for mining companies will rise, and profits will be impacted. Some companies may have to reduce production or even close mines.

The report stated that the financially strained Indonesian government is seeking to increase revenue to fund its ambitious spending plans. The country's fiscal situation has been tight due to President Prabowo Subianto's $28 billion plan to provide free meals for schoolchildren and pregnant women.

The government has initiated a $19 billion austerity plan to free up funds for the president's policies and is working to increase national revenue. In the first two months of this year, Indonesia's national revenue fell by one-fifth year-on-year, raising further questions about how Prabowo will fund his plans. The country's fiscal health has also been one of the reasons for the stock market sell-off.

Industry Warns of Potential Decline in Mineral Investment Enthusiasm

Commodities are the backbone of Indonesia's economy and a significant contributor to economic growth. In particular, the country's nickel industry has developed rapidly in recent years, attracting record foreign investment.

However, the report pointed out that as the nickel tax is increased, nickel producers are facing declining metal prices and higher costs from other recent regulations in Indonesia.

Mining companies have stated that production costs have already risen this year due to the increase in value-added tax and the requirement to use more biodiesel as fuel.

Since March, Indonesia has also required natural resource exporters to retain more of their overseas income domestically for at least one year to bolster its foreign exchange reserves.

In addition, companies are facing negative impacts from uncertainties related to Trump tariffs. The Indonesian Nickel Miners Association pointed out that the timing of the nickel tax increase is inappropriate against the backdrop of falling metal prices and escalating trade wars.

The association stated in a statement that the increase in nickel taxes could reduce investment interest in the nickel supply chain, weaken the competitiveness of Indonesian nickel products in the global market, and lead to large-scale layoffs due to profit pressures