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)