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.