Friday, February 03, 2017

Revision of Govt. Regulation 79/2010 Expected to Offer Tax Facilities for Upstream Oil-and-Gas Exploration

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Marcell Sihombing, M. Agus Yozami/ANT


Illustration of oil and gas companies. Photo by: SGP.


The government has just wound up deliberating the latest revision to Government Regulation No. 79 of 2010on Reimbursable Operational Costs and the Treatment of Income Tax Within the Upstream Oil-and-Gas Sector (“Regulation 79/2010”). Previously, a significant number of companies had complained about the provisions set out under Regulation 79/2010, which mandate that businesses should pay relevant taxes prior to the commencement of any production activities.
Commenting on this issue during a recent discussion event held in Jakarta on Wednesday, 31 January 2017, Goro Ekanto, the Head of the State Income Policy Center at the Ministry of Finance, asserted that the revision to Regulation 79/2010 would offer various tax facilities which could be exploited during the exploration stage of any upstream oil-and-gas activities.
“Previously, there were complaints from businesses regarding their being subject to tax starting from the exploration stage. The revision to Regulation 79/2010 addresses these complaints and offers a number of tax facilities which can be enjoyed during such exploration stages, and these will take the form of tax exemptions,” Mr. Ekanto stated.
Mr. Ekanto went on to reveal details of the various types of tax facility that will be on offer under the new revision, which relate to import customs, income tax for importation, domestic value-added tax and income tax for the reduction of cost-sharing expenses. However, Mr. Ekanto also emphasized that the economic value of any such tax facilities covering the exploration stage would depend upon each company’s capabilities.
It is important to note that the Ministry of Finance has also involved the Ministry of Energy and Mineral Resources in the deliberation process, specifically in relation to the provision of fiscal facilities which are significantly similar to the so-called “assume-and-discharge” provisions, and it is hoped that these will ultimately stimulate investment within the upstream oil-and-gas sector.
Mr. Ekanto also pointed to the fact that there has been a sharp decline in exploration activity following the issuance of Regulation 79/2010, and went on to outline his belief that this sharp decline, which has been far in excess of the Ministry of Finance’s original predictions, is the result of problems with the policy framework itself. Production of natural gas remains relatively stagnant across Indonesia, while the country’s level of success as regards exploration activities currently lies far behind that of many other ASEAN member states, including less-developed countries such as Vietnam, Myanmar and Brunei Darussalam.
Currently, the Revision to Regulation 79/2010 has been forwarded to the Coordinating Ministry for Economic Affairs for finalization and it is predicted that it will be issued sometime next month. Mr. Ekanto has also revealed that since discussions relating to the revision involving the Ministry of Energy and Mineral Resources, the Ministry of Finance and the State Secretariat have already been concluded, it is only a matter of time before the Revision to Regulation 79/2010 is officially issued.
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