Photo by MEMR

JAKARTA (TheInsiderStories) – To clarify the taxation of exploration and exploitation activities of oil and gas based on gross split, Government will issue a new presidential decree (PP) later this month to make oil and gas investments more attractive for investors.

“We heard that the issuance of the gross split of taxation is still unclear. The draft area ready, hopefully this month we expect to get out,” Deputy Minister of EMR, Arcandra Tahar said at the Upstream Oil and Gas Regulatory Special Task Force (SKK Migas) forum last week.

He explained, the new PP will regulate the tax treatments that are specific to oil and natural gas that can not be enforced general tax rules. The Government has issued Government Regulation No. 27 of 2017 on Amendment to Government Regulation Number 79 of 2010 on Restricted Operating Costs and the Treatment of Income Tax in Upstream Oil and Gas Business.

The issuance of PP is expected to increase the discovery of national oil and gas reserves and drive the investment climate as well as provide greater legal certainty to upstream oil and gas business activities.

To complete PP 27, the Government plans to issue a special taxation tax for Gross split which will be comparable with the Government Regulation Number 79 of 2010 Number 27.

Arcandra said, Government would set up a tax system similar to the Government Regulation No. 79/2010, through the Government Regulation No. 27/2017 on cost recovery schemes.

Under the regulation, He continued, the contractors would be granted tax incentives that would exempt them from various taxes during the exploration period. Meanwhile, in the exploitation period, the contractor would get tax exemption.

The tax exemptions are in the form of import duties on goods imports that are used in petroleum operations, value added tax, luxury goods tax, income tax and land and building tax deduction of 100 percent.

He added that the tax regulation was one of the factors responsible for investors reluctance to work on oil and gas blocks offered by the government. In fact, oil and gas blocks have been offered since a year ago.

According to Upstream Oil and Gas Regulatory Special Task Force (SKK Migas) data, in the first half of 2017, total investment in the upstream oil and gas sector recorded US$3.98 billion, or 29 percent of this year’s target $13.8 billion.

SKK Migas Chief Amien Sunaryadi admitted, the declining performance of supporting industries, declining on global crude prices and complicated regulations in the past were among the causes of low investment in the upstream oil and gas sector.

(Written by Linda Silaen, Email: linda.silaen@theinsiderstories.com)

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