[SMM Analysis] Indonesia's Tax Exemption Period May Affect BK Tariffs

SMM reported on September 5th that, according to SMM, the Indonesian government is considering imposing export taxes on NPI smelters regarding the export tax amounts for nickel products in the Indonesian nickel market. The tax amount may be more closely linked to fluctuations in LME nickel prices and coal prices. Specifically, the Indonesian government is considering abolishing the current tax holiday policy. The cancellation of the corporate income tax exemption will help increase the government's share of income tax (PPH). Therefore, to maintain the same project cash flow ratio (60%), the tax rate after the cancellation of the corporate income tax exemption will be lower than the corresponding tax rate when the corporate income tax exemption is still in effect. It is worth noting that the current proposal is more inclined to target NPI smelters using pyrometallurgical technology if the tax holiday is abolished, while smelters using hydrometallurgical technology and producing products for new energy electric vehicle battery systems will still be considered for the tax holiday.

It is understood that in the relevant proposal, the correlation between LME nickel prices and Indonesian benchmark coal prices has been finely divided, with LME prices roughly divided into five ranges: below $15,000/mt (Ni contained), $15,000 to $17,500/mt (Ni contained), $17,500 to $20,000/mt (Ni contained), $20,000/mt (Ni contained), and above $22,500/mt (Ni contained). Correspondingly, the benchmark coal prices are divided into five ranges: above $160/mt, $130 to $160/mt, $100 to $130/mt, $70 to $100/mt, and below $70/mt. After matching these price ranges, different export tax rates will be given for the tax holiday and non-tax holiday periods. Under the tax holiday, the upper limit of the export tax rate for Indonesian benchmark coal prices can reach 11.5%; without the tax holiday, the upper limit can reach 9.0%.

Regarding the BK tariff proposal, the calculation of the tariff per ton of nickel product is tentatively based on the export tax rate multiplied by the export benchmark price (HPE) and then multiplied by the corresponding nickel content in high-grade NPI or ferronickel. Different content ranges will be given for the nickel content differences in high-grade NPI and ferronickel. The determination of the HPE calculation will also be deeply tied to the HMA nickel price calculated monthly. The HMA nickel price multiplied by 1 minus 20% as the corresponding percentage payable, and then multiplied by the corresponding nickel content, will yield the export benchmark price.