Imports of exploration equipment exempted from VAT

The Ministry of Finance has issued a decree to exempt the imports of equipment for oil, gas and geothermal exploration activities from value added tax (VAT), Bisnis Indonesia reported on Wednesday.

The Minister of Finance Decree No. 24/PMK.001/2001 that is issued on Jan. 29, 2010 and effective through Dec. 31, 2010, stipulates that the government will pay for the VAT for the exploration equipment.

"In order to boost oil, gas and gothermal output, it is necessary to provide fiscal incentives for upstream activities," Minister of Finance Sri Mulyani Indrawati said in a statement.

The government has allocated Rp 2.5 trillion from the state budget to cover the VAT.

She noted however that only two types of companies are entitled to the fiscal incentive, that is oil and gas contractors that have signed contracts after the enactment of the Oil and Gas Law No. 22/2001 and goethermal investors who have got exploration/exploitation license from the government since Dec. 31, 1994 or those assigned by the government to conduct geothermal preliminary survey.

Furthermore, the decree sets three requirements in order to get the fiscal incentives. First, domestic manufacturers have not been capable of producing such equipment. Secondly, domestic manufacturers have been able to produce such equpiment but the products do not meet standards set by oil, gas and gothermal companies. Third, domestic producers have been capable of producing such equpiment but their quantity is not enough to meet the demand. (*)