Govt removes value added tax and import duties on drilling equipment

In order to boost oil, gas production and to encourage geothermal exploration, the government has decided to remove value added tax (VAT) and duties as well as income tax on imports of capital goods including drilling equipment to be used in exploration of oil, gas and geothermal, Kompas reported on Wednesday.

The decision was made Wednesday during a meeting between Vice President M. Jusuf Kalla, Minister of Energy and Mineral Resources Purnomo Yusgiantoro, chairman of oil and gas upstream regulatory agency BPMIGAS Kardaya Warnika, the chairman of the Fiscal Policy at the Ministry of Finance Anggito Abimayu and Pertamina's Vice President Director Arifin Takhyan.

Anggito said that the fiscal incentives would begin effective after the Finance Minister issued its implementation ruling on January 8, 2008.

"For import duty, we will impose a zero percent compared with 15 percent at present, and remove 10 percent VAT on import goods and 2.5 percent income tax on imports," he said following the meeting.

He said that the facilities would be given on imported equipment including rigs and other exploration equipment. "We are still waiting the full list of the equipment that would receive the fiscal incentives," he added.

Meanwhile, Purnomo said that the fiscal incentives were needed to help meet the government's target to increase oil production to 1.4 million barrels per day in the coming years.

Oil and gas contractors have complained that the high amount of taxes they had to pay on imports of exploration equipment had slowed down their exploration activities. (*)