Indonesia Govt to Provide Tax Allowances 20% to 80% for Upstream Oil & Gas

Mahakam Block - Photo by Special Task Force for Upstream Oil and Gas

JAKARTA (TheInsiderStories)—Indonesian government will provide tax allowances of 20 percent to 80 percent for the upstream oil and gas industry. The exact percentage of the tax allowances will be later decided by the government by considering the condition of each oil and gas block.

The Priority Infrastructure Procurement Acceleration Committee’s Director of Triharyo Soesilo said on Thursday (03/05) that the government will not give tax holiday for the oil and gas players, but instead it will realize the tax allowances promised to the industry–both under the cost recovery and gross split scheme–at between 20 percent to 80 percent.

The details of the tax allowance will be stipulated in the implementing regulation of the Government Regulation No. 27/2017 on the cost recovery scheme and Government Regulation No.53/2017 on the gross split scheme.

He pointed out that the economic coordinating ministry is waiting for the energy and mineral resources ministry to submit the proposal that will be followed up with the issuance of the finance ministry’s  regulation on the tax allowance in the upstream oil and gas sector.

Actually, both government regulation no. 27/2017 on the cost recovery and government regulation no.53/2017 on gross split has a clause on the tax incentive. However, those clauses are too general and do not elaborate on the required details.

The regulation only mentioned that the finance minister could give fiscal incentive for the uneconomic blocks. “The term “uneconomic” is too open that needs more details on it. The EMR Ministry should provide details on the type of fiscal incentives and blocks’ criteria that could receive the tax incentive.

The percentage of tax allowance could vary depending on the condition of each oil and gas block and further discussions between the related ministries. But he assessed it could be around 20% to 80%, as currently being discussed by the economic coordinating ministry.

He said that first the government will discuss the tax allowance in the cost recovery blocks, then move to the gross split blocks.

The cost recovery blocks are prioritized because there are several projects entering the process of filing Plan of Development (PoD) to the Special Unit for Upstream Oil and Gas Business Activities, including Masela Block in Maluku. The gross split blocks could wait since winners of blocks under the gross split scheme were just announced and still far from the PoD phase.

The Masela block was projected to start production by 2027, which was delayed from the initial target of 2024 due to the revision of plan of development (PoD). Japan’s Inpex Corp. began to operate Abadi field of Masela block since 1998 with a production sharing contract of 30 years.

The first PoD of the Masela block was signed by the government in 2010. At that time, Inpex had a 65 per cent participation interest. The rest is owned by its partner, Shell Upstream Overseas Services Ltd.

Then, in 2014, Inpex and Shell were asked by the government to revise its PoD from offshore liquefied natural gas (LNG) scheme to onshore LNG scheme. In the revision, both investors agreed to increase LNG facility capacity from 2.5 metric tonnes per annum (MTPA) to 7.5 MTPA.