Tax Justice in the Mining Sector: Indonesia’s Royalty and Income Tax Regime Revisited

Abstract

The extractive industry constitutes a critical source of public revenue for resource-rich developing countries, yet it remains highly susceptible to tax base erosion and unequal rent distribution. This paper examines Indonesia’s mining sector taxation framework, focusing on the interaction between royalty regimes, corporate income taxation, and contractual arrangements with multinational mining corporations. Using doctrinal legal analysis combined with policy evaluation, the study assesses whether Indonesia’s fiscal design ensures an equitable allocation of natural resource rents between the state and private investors. The analysis reveals that stability clauses, preferential tax treatments, and limited renegotiation mechanisms significantly reduce the effective tax burden borne by mining companies. These features weaken vertical equity and constrain the state’s capacity to capture extraordinary profits during commodity booms. The paper argues that Indonesia’s experience reflects broader structural challenges faced by developing countries in taxing extractive industries within globalized capital markets. The global contribution of this study lies in providing sector-specific evidence on how legal and contractual design shapes tax justice outcomes in resource-dependent economies. By situating Indonesia’s mining tax regime within international debates on extractive sector governance, the paper offers policy-relevant insights for reforming royalty systems, strengthening progressive rent capture, and enhancing transparency. These findings contribute to global tax justice scholarship by emphasizing that equitable extractive taxation requires both robust legal frameworks and institutional capacity to renegotiate power asymmetries between states and multinational enterprises.