Pertamina backs up contractors in dispute with tax office

State oil and gas company Pertamina voiced Wednesday supports to oil and gas contractors in their legal efforts to force the tax office to revoke its tax ruling on exploration activities, a senior official of the state company said.

?Our standpoint is that we support the contractors. Let the current legal process settle the dispute,?

director of management production sharing (PSC) management Effendi Situmorang said.

Effendi referred to the objection recently filed by tens of production sharing contractors (PSC) at the Tax Dispute Settlement Body (BPSP) against the ruling of the tax office requiring the contractors to pay value added tax (VAT) during explorations. Previously, contractors enjoyed a special tax treatment, allowing them delay paying the VAT until production stage as stipulated in the contracts with Pertamina.

Effendi said the new tax ruling was too burdensome for contractors.

?And it is ridiculous that the contractors already have to pay a 10 percent (value added) tax while they are not yet in production,? Effendi said.

Despite the strong opposition from the contractors, the tax office insisted on implementing the new ruling, voicing optimism to win the case.

Head of the Jakarta tax office Muhammad Said earlier said he was optimistic that the contractors would lose in the dispute, citing Kuwaiti contractor Kupfec, which had filed a similar objection but lost in the BPSP.

He said the contractors could not win the dispute because of two weaknesses.

First, their contracts with Pertamina were private contracts which are subordinate to the tax law.

Secondly, the oil and gas contracts do not specifically mention about the VAT delay. But it is stipulated in a separate presidential decree. (Godang)