Indonesia give an incentives for oil and gas producer - Photo by IEA

JAKARTA (TheInsiderStories) – Indonesia’ tax office give several tax incentives for oil and gas contractors in the form of value-added tax (VAT) and luxury tax, said the directorate general on Friday (08/30). No further details on the percentage of the incentives but will deducts 100 percent of outstanding land and building tax related to oil and gas projects in the exploration stage.

The tax office will provide similar tax incentives for companies at the exploitation stage that cannot achieve a certain internal rate of return. The tax incentive facilities are provided in Minister of Finance Regulation Number 122 of 2019 was signed by finance minister Sri Mulyani Indrawati on August 27, 2019.

The eligible companies must have certain working areas, such as developments of unconventional oil and gas fields. However, the outstanding land and building tax deduction only apply to land tax for a maximum of 100 percent of the outstanding amount. The tax office also relaxes income tax and VAT requirements on certain services.

“These various incentives are given to increase the frequency of oil and gas discoveries and to improve the investment climate for upstream oil and gas activities,” the statement reads.

Provision of tax facilities in the form of VAT and luxury goods sales tax, as well as land tax and buildings in the exploration stage and stages exploitation is carried out by the head of regional office for and on behalf of the minister, it said.

At the exploration stage in the context of operation petroleum, the contractor is given taxation facilities included the VAT and luxury goods sales tax payable is not collected for the acquisition of certain taxable goods and/or certain taxable services.

Second, utilization of taxable goods on certain manifestations from outside the customs area. And third, utilization of certain taxable services from outside customs area inside the customs area.

Furthermore, at the exploration stage, the facilities provided include the exemption of VAT and luxury goods sales tax for the acquisition of goods and services used in the context of petroleum operations. In addition, the outstanding land and building tax can be reduced by 100 percent from the outstanding oil and gas.

As for the contractor who is in the exploitation stage, the facilities provided are the same. It’s just that, for the land and building tax the highest was reduced by 100 percent. Those who get the incentive are companies that do not achieve the internal rate of return located in the sea or unconventional field development.

In addition, the government provided tax incentive facilities in the form of an exemption from withholding income tax on operating costs. The indirect costs that meet certain conditions will not be used as a tax object.

The tax incentives come after the Energy and Mineral Resources ministry announced a regulation that will open access for industry stakeholders to the nation’ oil and gas data, which is expected to encourage exploration and exploitation.

Indonesia has 3.15 billion barrels worth of proven oil reserves and burned through 450.78 million barrels of fuel last year, ministry data show. The government expects the data regulation to help accelerate exploration into 4.36 billion barrels of potential oil reserves and into 39.49 trillion standard cubic feet of potential gas reserves.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com