Contractual regime for foreign investment in Indonesian mining law was officially ended in 16th December2008 when Indonesian parliament passed the bill on Mineral and Coal Mining. The issuance of the law currently known as Law Number 4 of 2009 (“Mining Law”) replaced the contractual regime with licensing regime which of course made a huge implication in mining investment, especially in tax aspects of the industry. This new mining law stipulates that contractual based concessions are no longer available for new mining projects. Both well-regarded Contract of Works (CoW) and Coal Contract Of Works (CCoW) were replaced by single area-based license respectly known as Izin Usaha Pertambangan (IUP) dan Izin Usaha Pertambangan Khusus (IUPK). CoW and CCoW of works that already exist prior to the effectiveness Mining Law remain valid until the contracts/agreements expire although the terms that are stated by articles of CoW and CCoW as should be adjusted no later than 12 January 2010.
Comparison Of Tax Regime Imposed To CoW/CCoW Holders And IUP/IUPK Holders
The key features of CoW/CCoW (together as “contract”) is its lex specialis status. This status is explained as the terms in the CoW/CCoW override the general laws. This overriding is also applied to its tax provisions in the contract. It means when certain specific tax rules are set out in the CoW/CCoW, these tax rules generally take precedence over the prevailing tax laws. The affirmation of lex specialis status of taxation clause in CoW/CCoW is also stated in the Circular Letter of the Director General of Taxation Number SE – 34/PJ.22/1988 and Letter of Minister Finance of the Republic of Indonesia Number: S-1032/MK.04/1988.
Generally, the tax rules in a CoW/CCoW reflect those that are in force at the time the contract is signed, although there may be some exceptions due to unique characteristics of mining industry. Typically, CoW or CCoW fixes the tax rules for the duration of the contract. Tax clauses usually mentioned and specified in CoW and CCoW are corporate taxes, value added tax, land and building tax, withholding tax, and regional taxes. Some contracts even included administration matters like tax registration and bookkeeping matters. Any taxation matters that are not governed in the contract should follow the provisions in the prevailing laws. The advantage of having this lex specialis tax rules in a contract for investor includes tax stability throughout the life of the project or at least up to the of the contract term. In the other hand, holder of CoW/ CCoW may not always be able to access favourable changes in the tax law, such as reduction of tax rates, new deductable expenses, or tax incentives.
The new mining law sets out that IUP/IUPK holders have the obligations to pay the state revenues and regional revenues, while the revenues aforementioned includes taxes. Any tax obligations and facilities should be paid in accordance with prevailing laws and regulations, except otherwise stated in IUP/IUPK. It means that IUP/IUPK holders get the same tax treatment as other taxpayers from other industries. They pay corporate tax, value added tax, and other taxes at the same rate and same way with other industries, which is of course disappointed since mining industry has unique characteristics.
Less Specialized Taxes for Mining Industry
Despite any disadvantage CoW and CCoW gave to foreign investor, its lex specialis status have historically been favoured by investors. This likeness is mostly because this status provides stability for mining project, particularly in big ones. Lex specialis status can also fit more to unique characteristics of mining industry, which are high risk sector, exploiting non renewable resources, involving huge capital investment, long period of break even point, and prone to commodity prices fluctuation risk. These unique characteristics as described in the points above make mining industry requires special treatment, including tax discrimination, from the government so the sustainability of this sector can be maintained.
Specialized tax needed for mining sector can be achieved from CoW/CCoW because the tax clauses was compromized between the government and the contractors. Unfortunately, Mining Law does not provide such facility for new mining project. Tax provisions for new mining contractors are the prevailing laws and regulations which unlikely to fit in mining sector characteristics. My point is that government needs to issue new tax regulations exclusive to mining sector so IUP/IUPK holders can still get the facilities and incentives. In a long run, these tax facilities and incentives will increase the foreign investments in mining sector.
 Contract of Works and its contractual system was a quintessential part in the success of Indonesian Mining Industry in the past. It could be argued that Indonesia’s mining law system is one of the best in the late 1960s. Charlie Lenegan, Rio Tinto in Indonesia: Past, Present, and Future, (Keynote Speech, OzMine Conference, Jakarta, 2007) pg 2.
 Indonesia, Mineral and Coal Mining Law, Law Number 4 of 2009, SG Number 4 of 2009, SSG Number 4959, art 169.
 Price Water House Coopers , Mining In Indonesia: Investment and Taxation Issues 2011, (Jakarta: Price Waterhouse Coopers, 2011), pg 44-45.
 Indonesia, op.cit., art 128.
 Ibid, art 131.
 Foreign Investment Advisory Service, Study on the Impact of Taxes, Customs, Licenses and other Fees on the Investment Climate Mozambique 2006, <https://www.wbginvestmentclimate.org/uploads/mozambiquestudyimpactoftaxesenglish.pdf> pg 32.