Government plans new regulation on taxation for gross split scheme

The government is drafting a new regulation on special taxation for oil and gas production sharing contracts using the recently-introduced gross split mechanism in a bid to help further improve investment climate in the country?s upstream sector.

Deputy Minister of Energy and Mineral Resources Arcandra Tahar said in a statement Thursday that general tax provisions can?t be applied in contracts using gross split mechanism.

?The draft has been completed, hopefully it can be issued this month,? he said, without providing further details about the planned new regulation.

The government has recently introduced new Government Regulation (GR) No 27/2017, which is a revision to Government Regulation No 79/2010 (not No 89 as previously reported by this portal), on operation cost that can be reimbursed and income tax treatment in upstream oil and gas activities. The new regulation, which has been recently signed by President Joko Widodo, promises tax incentives for contractors using the gross split mechanism, which was recently introduced by the government to replace the cost recovery mechanism.

The Indonesia Petroleum Association (IPA) described the new regulation as a good start to help improve investment climate in the upstream sector, but it falls short of IPA expectations.

?The GR No 27/2017 has been issued, and signed by the President. What has been revised is not 100 percent as expected by the IPA, but it (the new regulation) has accommodated much of it,? Arcandra said.

Editing by Reiner Simanjuntak