Government promises tax incentives for exploration activities
Wednesday, July 5 2017 - 12:58 AM WIB
Petromindo
The government promises tax incentives for oil and gas exploration activities in a bid to help improve investment climate in the sector under a new Government Regulation No 27/2017, which has been recently signed by President Joko Widodo.
The new regulation, which is a revision to Government Regulation No 89/2010 on operation cost that can be reimbursed and income tax treatment in upstream oil and gas activities, however, is only applicable on production sharing contracts based on the cost recovery mechanism.
According to the new regulation, oil and gas contractors carrying out exploration activities are entitled to certain tax facilities including exemption of import duty. The regulation also says that there are four criteria of goods and services exempted from value added tax and luxurious sales tax.
Executive Director of the Indonesia Petroleum Association (IPA) Marjolijn Wajong was quoted by Kontan as saying Wednesday that the industry group was still evaluating the new government regulation, and is awaiting for the implementing regulations including from the Minister of Finance.
Marjolijn, however, said that IPA welcomes the government?s initiative to start improving investment climate in the oil and gas sector by promising tax facilities for exploration activities.
However, it is lamentable that the tax incentives can only be given following considerations by the government, which means there remains uncertainty for investors in obtaining the tax facilities, while on the other hand oil and gas contractors need certainty to be able to determine the economic feasibility of upstream project from the exploration to exploitation stage.
Marjolijn said that the new regulation is not strong enough to lure fresh investment into the upstream oil and gas sector. ?While Government Regulation No 27/2017 looks better than Government Regulation No 89/2010, it falls short of the IPA recommendations to help improve investment climate in the Indonesian oil and gas sector.?
Editing by Reiner Simanjuntak