New Regulation on Revenue Sharing Funds for Palm Oil Plantations in Indonesia

The Indonesian government recently issued a regulation on revenue sharing funds for palm oil plantations, Government Regulation No. 38 of 2023 dated July 24, 2023, regarding Palm Oil Plantation Revenue Sharing Fund (“Palm Oil RSF”) (“GR 38/2023”).

Before the enactment of GR 38/2023, only two types of revenue sharing funds were recognized under Minister of Finance (“MOF”) Regulation No. 139/PMK.07/2019 dated October 7, 2019, regarding Management of Revenue Sharing Funds, General Allocation Funds and Special Autonomy Funds, as last amended by MOF Regulation No. 86/PMK.07/2022 dated May 24, 2022. These two types of revenue sharing funds are:

1. tax revenue sharing funds, which include income tax, land and building tax, and excise from tobacco products; and
2. revenue sharing funds from natural resources, which include forestry, mineral and coal, oil and gas, geothermal, and fisheries.

Below are the key points regulated under the newly issued GR 38/2023.

Source of Funds and Calculation

Palm Oil RSF derives from export levies and duties on palm oil, crude palm oil, and/or its derivative products. Generally, the ceiling fund is determined based on the state income realized from the previous year, but it shall not amount to less than 4% of the overall state income. The exact amount of the minimum Palm Oil RSF allocation shall be stipulated by the MOF.

The Palm Oil RSF shall be distributed in the producing areas according to the following percentages:

1. The relevant province shall be entitled to 20% of the overall Palm Oil RSF;
2. The producing regency/city shall be entitled to 60% of the overall Palm Oil RSF; and
3. Other regency/city directly adjacent to the producing regency/city shall be entitled to 20% of the overall Palm Oil RSF.

The amount of the Palm Oil RSF for the relevant province/regency/city will be determined by considering the following factors:

1. Area of palm oil plantation;
2. Productivity of palm oil plantation; and/or
3. Other indicators as may be stipulated by the MOF.

Considering that GR 38/2023 was only recently issued, there is not yet any visibility on other relevant indicators that may be stipulated by the MOF or any other regulation relating to this matter. This will need to be further regulated by implementing regulation.

The detailed calculation of the Palm Oil RSF allocation shall be done by the MOF, while the central government (through the president, vice president, and the relevant minister) shall stipulate the minimum allocation value of the Palm Oil RSF for each province, regency, or city. Based on a recent statement from the MOF, the value of the Palm Oil RSF shall be no less than IDR 1 billion.

Purpose of Distributing the Palm Oil RSF

The Palm Oil RSF shall be utilized for the development and maintenance of road infrastructure and/or other activities as may be stipulated by the MOF.

Fund Distribution from the Central Government

The Palm Oil RSF shall be distributed by transfer (pemindahbukuan) from the General State Cash Account (Rekening Kas Umum Negara) to the General Regional Cash Account (Rekening Kas Umum Daerah). The distribution shall be implemented based on a detailed Palm Oil RSF allocation as stipulated by the Presidential Regulation regarding the State Budget for the relevant year and can be done all at once or in stages. The MOF may provide any excess or insufficient Palm Oil RSF payment. Any insufficient Palm Oil RSF payment to the relevant province/regency/city shall be resolved by considering the financial ability of the state.

Reporting and Evaluation for the Use of Palm Oil RSF

The governor of the relevant province shall be responsible to monitor and evaluate the allocation, use, and technical implementation of activities funded by the Palm Oil RSF and submit a report to the MOF and/or other relevant ministers/heads of government agencies. Each regent/mayor whose working area is located within the relevant province utilizing such funds shall be responsible to prepare and submit a Palm Oil RSF utilization report to the governor, MOF, and/or other relevant ministers/heads of government agencies.

If the relevant province does not utilize the Palm Oil RSF in compliance with the prevailing regulations, the MOF may sanction such province by halting and/or terminating the Palm Oil RSF distribution.

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