Government considers tax incentives

Government considers tax incentives

JAKARTA (JP): Amid the current political crisis and security
concerns, the government is considering offering the oil and gas
industry tax incentives to lure more investors into the country,
a senior government official said on Wednesday.

Director general for tax Hadi Purnomo said his office was
gathering inputs from oil and gas firms to work on a tax
incentive scheme.

"We must come together and seek a collective understanding,"
Hadi told reporters after a discussion with investors from the
oil, gas and mining industries held by news website
Petromindo.com.

Details of the tax inventive scheme are not available yet, he
said, but added that "there will be no discrimination, it's equal
treatment for everyone."

Under the current tax regime, the government can offer
businesses a variety of income tax facilities.

They include tax holiday, accelerated depreciation, investment
allowance and compensation on losses.

Hadi said it was too early to say whether the government would
adopt any of the existing tax incentives schemes.

The government, he said, was trying to identify what oil and
gas companies wanted before working out a tax incentive scheme.

Hadi said tax payments from the oil and gas industry made up
almost 25 percent of the country's total income tax revenue of Rp
94.97 trillion (about US$8.4 billion) for this year.

"So clearly, we want to lure more oil and gas investors into
the country," Hadi said.

But investors have slid into difficult times after the 1998
reforms euphoria soured Indonesia's investment climate.

Deterioration of law and order, political bickering and
uncertainties due to regional autonomy have heightened
Indonesia's country risk and made investment here expensive.

Hadi however added he had no intention to spoil the oil and
gas industry with too many tax incentives.

He said tax regimes of other Southeast Asian countries might
be more attractive, but Indonesia's abundant natural resources
should remain an attraction to foreign investors.

"The problem now is the political instability and security
concerns," he said. "So what will incentives mean to investors if
they don't feel safe in our country."

Also, he said the government must carefully select the
incentives scheme to avoid creating unfair competition against
other countries.

He said Indonesia must refrain from issuing tax policies that
smacked of discrimination or which could turn the country into a
tax heaven.

So far, according to Hadi, Indonesia's tax regime is "very
competitive"

Today's oil and gas firms working under production sharing
contracts with state oil and gas company Pertamina are subject to
corporate taxes as stipulated in their contracts.

Their contracts guarantee a fixed tax rate throughout the
contract period, despite changes in the government's tax policy.

Depending on the year the contracts were signed, oil and gas
firms' corporate taxes range from 30 percent to 45 percent.

But Bill Fanagan of the Indonesian Petroleum Association (IPA)
said Indonesia was among the few countries with the toughest tax
regime.

He said a study showed that Indonesia ranked among the top 25
percent of countries with the toughest contract terms in the oil
and gas industry.

"That means it (Indonesia) has got the highest level of
taxation in the industry," he explained.

Fanagan suggested the government strike a balance between
imposing tight taxation rules and attracting oil and gas
investments.

Another option, he said, would be to offer temporary tax
incentives during difficult political circumstances. (bkm)