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JAKARTA (TheInsiderStories) – Indonesian government decided to waive the oil income tax for oil producer (PSC) to lowering the imported costs, said one official on Thursday (23/08). With this tax exemption, it is no longer a hindrance for the PSC to sell oil directly to state-owned energy firm PT Pertamina.

Previously, the government has asked Pertamina to buy domestic fuel through a PSC which operates an oil block in Indonesia. The step was carried out by revising the Minister of Finance (MoF) Regulation Number 107 of 2015 to become MoF Regulation Number 34 of 2017.

According to Energy and Mineral Resources Ministry’s Director General for Oil and Gas Djoko Siswanto that at this time the regulation was abolished. The obligation to sell oil to Pertamina, Siswanto said, it will need a new contract and thus, who has a long-term contracts owned by the current contractors will be valid until its time is over.

He added, this policy is expected to reduce imported fuel with a foreign exchange saving up to US$2.3billion by the end of this year. Indonesia booked $89.04 billion in import in the first semester of this year, significantly higher than export at $88.2 billion.

It made the country booked a trade balance deficit of $1.02billion in the first semester of this year. This condition widened CAD and put more pressure on the rupiah exchange rate against the US dollar.

Curbing import is the easiest route in the attempt to curb the widening CAD, which reached 3 percent of GDP in the second quarter of this year. Indonesia recorded a trade deficit $1.02 billion in the first six months this year, with imports rising faster in the past two months as economic activities gain momentum.

The government had taken bold steps to address Indonesia’s persistent current account deficit (CAD), which continues to underwhelm the economy and a source of weakness and volatility for the rupiah.

The government also evaluated the income tax rate (VAT) of imports to control the level of CAD that exceed the level of 3 percent of gross domestic products (GDP) in the second quarter of 2018. The government also rated the income tax for export proceeds as an attempt to stabilize Rupiah exchange rate against US dollar.

To that end, according to Finance Minister Sri Mulyani Indrawati, the plans to reduce imports began to be pursued to import raw materials and capital goods, especially for infrastructure projects owned by Pertamina and state-owned power producer PT Perusahaan Listrik Negara.

Then, import restrictions also made to the consumer goods mainly against 500 types of commodities in trade and industry sectors that can be produced domestically. This also supported by measures to control the import of which is with the imposition of the increase in income tax rates and other tariff import that can withstand the high CAD.

The expanded B20 policy also taking and is estimated to cut imports by $2.3 billion until the end of the year. In addition, given Indonesia’s position as the world’s largest CPO exporter, the policy will boost the price of the commodity.

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