Govt unveils fiscal, non-fiscal incentives for oil, gas industry

The government completed on Friday the revision of Government Regulation (GR) No 79/2010 on cost recovery and tax treatment for the oil and gas industry, which will be effective once it has been signed by President Joko Widodo.

Minister of Finance Sri Mulyani Indrawati said in a press statement that the revision of GR No 79/2010 is to help attract fresh investment into the country?s upstream oil and gas sector by providing fiscal and non-fiscal incentives.

Following are the main changes made to GR No 79/2010:

First is related to tax facilities provided for oil and gas investors during exploration stage. Import value added tax (VAT) and import duty, as well as domestic VAT, and land and building tax (also known locally as PBB) will be shouldered by the government during the exploration period.

Second is related to tax facilities provided during exploitation period including the exemption of import VAT, domestic VAT, and PBB especially given when considering the economics of the project.

Third is exemption of income tax deduction on allocation of operational cost on joint facilities (cost sharing) by contractors to benefit from state assets in the upstream oil and gas sector, and on allocation of headquarters overhead cost.

The statement said that the revised regulation will also provide clarity on non-fiscal facilities such as investment credit, accelerated depreciation, and domestic market obligation (DMO) holiday.

Finally, in the revised regulation, the government will apply the so-called sliding scale concept in the oil and gas profit sharing mechanism.

Sri Mulyani said that the fiscal and non-fiscal incentives will help increase in the internal rate of return of upstream oil and gas projects in the country to 15.16 percent from 11.59 percent.

Editing by Reiner Simanjuntak