Govt introduces new PBB tax scheme for oil, gas, geothermal

The Directorate General of Taxation issued a new regulation on land and property tax (better known here as PBB) in the oil and gas, and geothermal sector, that is expected to ease the tax burden of contractors.

The new Directorate General of Taxation Regulation No PER-45/PJ/2013 introduces a new zoning concept under which the PBB tax is only applied to land and property designated for oil, gas and geothermal activities.

In comparison, the previous regulation was based on the working area concept, where the PBB was applied to all areas controlled by the oil and gas contractors, and geothermal companies.

The new regulation, effective as of January 1, 2014, also stipulates ?other areas? exempted from the PBB tax including land, deep water and offshore area located within the working areas of the contractors.

Oil and gas contractors particularly those still at exploration stage have long complained about the burdensome PBB tax. The Indonesian Petroleum Association (IPA) has lobbied the government to issue a more favorable tax regime in a bid to help lure more investment into the country?s oil and gas sector.

IPA Chairman Lukman Mahfoedz said in December of last year that between 2011 and 2012, the oil and gas contractors paid a combined PBB of US$260 million.

He said that oil and gas exploration activity does not necessarily end up with favorable outcome. He pointed out as an example that from 2009 to 2011 there were 12 production sharing contractors which failed in deepwater drilling activities after spending $1.9 billion.

Editing by Reiner Simanjuntak