Request for tax exemption in oil, gas exploration rejected

The Directorate General of Taxation has rejected the request of oil and gas contractors to be exempted from the burden some land and building tax (better known here as PBB) during exploration stage, Bisnis Indonesia reported on Friday.

?We have received report that the request has been turned down,? Chairman of the Indonesian Petroleum Association (IPA) Lukman Mahfoedz told the paper.

He said that this would make exploration activities in 15 oil and gas blocks to be less optimal as contractors await government decision regarding their objection to the PBB. Among of the contractors are Inpex, BP, ENI, Stat Oil, Niko Resources, and Pertamina, the paper said.

Lukman said that Indonesia is the only country among those applying the oil and gas production sharing contract (PSC) system that imposes land and building tax on contractors while still at the exploration stage.

He added that the contractors request has actually received support from the Ministry of Energy and Mineral Resources, and the upstream oil and gas authority SKK Migas.

The oil and gas contractors filed complaint over the PBB issue in June of last year as they argued that imposing the tax during exploration period was quite burdensome as they have yet to start production, and that exploration activities does not necessarily end up with favorable outcome.

Lukman said last year that between 2011 and 2012 alone, oil and gas contractors in the country paid a combine PBB of US$260 million. (*)