JAKARTA (TheInsiderStories) – The Government of Indonesia give legal certainty on upstream oil and gas business by issuing President Decree (PP) No.27/2017.
President Joko Widodo has signed Government Regulation (PP) No. 27 of 2017 on Amendment to Government Regulation Number 79 of 2010 on Restricted Operating Cost and Treatment of Income Tax in Upstream Oil and Gas Business on June 19.
Susyanto, secretary of directorate general for oil and gas, explained the new regulation issued in order to increase the discovery of national oil and gas reserves, to drive investment climate and provide legal certainty on upstream oil and gas business activities, flexibility in the determination of profit sharing, incentives in Upstream Business Activities both fiscal incentives And non-fiscal.
Below are important points of the regulation :
1. The arrangement for the sliding scale split on Production Sharing Contracts (PSC)
2. Providing incentives for upstream activity, such as tax incentive during the exploration and exploitation period.
a) Exploration period: the tax incentives include the exemption of import duties, value-added tax or value-added tax for luxury goods, no collection of income tax for import goods, and the reduction of tax for land and building.
b) Exploitation period: the tax incentives include the exemption of import duties, value-added tax (PPN) or value-added tax for luxury goods (PPnBN), no collection of income tax for import goods, and the reduction of tax for land and building (PBB) until maximum 100%. (Given on consideration of the economic scale of said projects)
c) The cost sharing is excluded from income tax (PPh) and also no collection for PPN
d) The indirect spending allocation by central offices is not object of PPH and PPN
3. The relaxtion of costs, from non-cost recoverable to cost recoverable
a) Costs for environment development and local society during exploitation period
b) PPh of employees are paid as allowances
c) Incentive cost for interest recovery
4. The confirmation on Block Basis principle for calculating the cost recovery by eliminating explanation Article 12 paragraph (1) letter a that regulating the Plan Of Development (POD) principle on field basis or by field calculation.
5. To impose PPh over uplift income and transfer of Participating Interest will be made one time and final (including PPh of Branch Profit Tax).
6. Expanding the authority of Minister for Energy and Mineral Resources (ESDM) in calculating the depreciation in attempt to maintain production level.
7. The formulation of standard and norms for the inspection as guidance for SKK Migas, BPKP, and General Directorate of Tax.
8. The regulation on transfer of participating interest:
a. The contracts signed before enactment of Oil and Gas Law year 2001 and contracts signed after enactment of oil and gas law until enactment of PP 79/2010 could follow the contract term or adjust the term under PP 27/2017 for the latest six months after the enactment of PP 27/2017.
b. The contracts signed after enactment PP 79/2010 could adjust the terms of PP 27/2017 in six months after the enactment of PP 27/2017.
c. The contracts signed after enactment of PP 27/2017 is required to follow terms of PP 27/2017.
The revision of PP 79 year 2010 is aimed to lead the energy and mineral resources sector into more effective on the operation, said Parulian Sihotang, deputy for finance and monetisation. (MS)