Government plans new tax ruling for gross split scheme

Petromindo

The government is drafting a new tax regulation to be applied in oil and gas contracts using the recently-introduced gross split scheme, Bisnis Indonesia reported on Friday.

The paper quoted Deputy Minister of Energy and Mineral Resources Arcandra Tahar as saying the ministry and the Ministry of Finance are drafting the new tax ruling, and will summon oil and gas industry players after the Indul Fitri celebrations to get inputs and discuss the new tax regulation.

The Ministry of Energy and Mineral Resources has introduced a new gross split mechanism to be applied in new oil and gas production sharing contracts. Under the new scheme, which replaces the cost recovery mechanism, oil and gas contractors will no longer get reimbursement from the government for their operating and production expenses, but will obtain a greater production split and freedom in running their operations as procurement of goods, services and technologies will no longer require approval from upstream authority. Some industry players have previously expressed reservations over the new scheme saying that it would undermine feasibility of upstream projects.

Meanwhile, Executive Director of the Indonesian Petroleum Association (IPA) Marjolijn Wajong said that IPA has proposed to the government to introduce a new tax system when applying the gross split scheme to improve the economic feasibility of upstream projects especially as the government plans to offer to investors 15 new oil and gas working areas using the new gross split scheme in the contracts.

Under the cost recovery scheme, oil and gas contractors are subject to value added tax, income tax, and import tax. ?IPA opines it would be much better if the tax issue has been cleared when investors consider whether to take up the new blocks to be offered by the government via tender,? Marjolijn said. (*)