Jakarta. Institute for Development of Economics and Finance (Indef) has warned that surging oil and coal prices driven by tensions in the Strait of Hormuz are threatening Indonesia’s fiscal stability, urging the government to immediately introduce a windfall profit tax to capture excess commodity gains.

Indef economist Ariyo DP Irhamna said Indonesia faces a recurring dilemma. While higher commodity prices boost upstream revenues, the absence of a proper windfall mechanism means much of the excess profit does not flow into state revenue.

“Indonesia faces a recurring dilemma: upstream revenues do rise, but without a windfall capture mechanism, most of the economic rent escapes the state budget,” Ariyo said in a statement on Friday.

Fiscal pressure has intensified as Brent crude oil prices surpassed $100 per barrel, while Indonesia’s benchmark coal price (HBA) climbed to $103.43 per ton. Ariyo highlighted a key weakness in the current royalty system, which is based on gross revenue rather than profit, limiting the state’s ability to capture only around 10–15% of economic rent during price surges.

Indef estimates the lost revenue potential is substantial. In 2022 alone, unrealized state revenue from the absence of such a mechanism reached an estimated Rp 223 trillion ($13 billion) — from coal contributing Rp 192 trillion and Rp 31 trillion from oil and gas. Over the 2017–2024 period, the average annual unrealized potential stood at Rp 67 trillion.

As a solution, Indef proposed adopting a Profit Resource Rent Tax (PRRT), which would only apply when companies earn above-normal profits, making it less burdensome during periods of low commodity prices.

“The government fails to optimally capture economic rent when prices are high, while during downturns, gross revenue-based royalties squeeze already thin corporate margins,” Ariyo said.

Beyond taxation, he also proposed establishing a Revenue Stabilization Fund to store windfall revenues as a fiscal buffer. The fund could reach up to 3% of GDP within its first five years, helping cushion the economy when commodity prices decline.

Without reform, Indef warned Indonesia risks repeating the same cycle, missing revenue opportunities during booms and lacking fiscal buffers during downturns.

“Without a rent-capturing instrument, Indonesia will continue the same pattern: letting go of 85–90% of economic rent during price spikes and losing fiscal buffers when prices fall,” he said.

Separately, Finance Ministry official Febrio Kacaribu acknowledged that rising global commodity prices, driven by escalating Middle East tensions, have automatically boosted state revenue, with gains coming from key exports such as coal, crude palm oil (CPO), nickel and copper.

“Without any policy changes, our revenue will certainly increase,” Febrio said on April 9.

Still, the government does not intend to rely solely on market-driven gains. The Finance Ministry is coordinating with the Ministry of Energy and Mineral Resources to explore additional measures to optimize windfall gains from commodities.

Several fiscal instruments are under review, including royalty adjustments and export duties on strategic minerals.

“We are reviewing various minerals, the instruments could vary, from royalties to export duties. Once finalized, we will announce it,” Febrio said.