Govt told to drop VAT policy in oil and gas sector

Govt told to drop VAT policy in oil and gas sector

Moch. N. Kurniawan, The Jakarta, Jakarta

The government should cancel its controversial policy forcing
oil and gas companies, geothermal firms during the exploration
stage to pay value-added tax (VAT) as it could cause more losses
to the government, experts said.

Oil industry analyst Ramses Hutapea said that since the policy
was against existing contracts it could lead the companies to
bring cases to the international arbitration panel.

"The government must not impose VAT on companies during the
exploration period. It is against the production-sharing contract
(PSC)," he told The Jakarta Post on Saturday, referring to the
contract between state-owned oil and gas firm Pertamina and
private oil and gas firms.

Ramses said that judging by past experiences, battles at the
international arbitration panel would only inflict more financial
losses to the state.

Pertamina and state-owned electricity firm PLN have had to pay
millions of dollars worth of penalties after losing cases against
independent power firms at the arbitration panel, he pointed out.

The case was a result of the government's decision to cancel
the development of several power projects in the wake of the 1998
economic crisis.

Ramses also said that the new VAT policy would only hamper
investment in the oil, gas and geothermal sectors.

The government introduced a new policy on Jan. 1, 2000, ruling
oil and gas companies and geothermal firms during the exploration
stage to pay VAT. Previously, these companies could postpone
paying VAT until they began commercial production.

The new policy was launched in a bid to help raise tax
revenue. The government expects some Rp 2 trillion (about US$200
million) in additional tax revenue from the new VAT policy.

Riki F. Ibrahim of the Indonesian Geothermal Association
(INAGA) said that foreign oil and gas companies would ask
Pertamina to pay the VAT.

He said that according to the PSC contract, Pertamina must
reimburse VAT within 60 days.

He said that if Pertamina declined to do so, the oil and gas
firms could bring the state company to the international
arbitration panel. However, paying the VAT could create financial
trouble for Pertamina.

Some oil and gas companies still at the exploration stage have
protested the VAT ruling.

Unable to get a satisfactory response, about 30 oil and gas
companies filed a complaint last year with the board for tax
settlement agency (BPSP).

According to the spokesman for Pertamina's managing
production-sharing contract directorate, Sidick Nitikusuma, BPSP
had so far settled two cases.

BPSP granted a victory for ExxonMobil Oil Indonesia Inc., but
it ruled in favor of the government in the case against Kuwait
energy giant Kufpec.

It's still unclear why BPSP gave two different verdicts for
the same case.

The government has said it plans to provide non-fiscal
incentives to oil and gas companies and geothermal firms as
compensation.