IPPs asks Supreme Court to settle VAT dispute

Moch. N. Kurniawan, The Jakarta Post, Jakarta

Independent geothermal power producers (IPPs) in the country are putting their last hopes on the Supreme Court to independently settle their dispute with the tax office over a controversial value added tax (VAT) ruling.

Riki F. Ibrahim of the Indonesian Geothermal Association (API) said that the IPPs could not expect a fair decision from the tax court as many of the judges came from the Directorate General of Taxes.

"We think many judges in the tax court are not neutral as they came from the Directorate General of Taxes. How will the decision be fair?" he told The Jakarta Post.

"We expect the Supreme Court, as the highest court, will be able to decide our cases independently."

The Directorate General of Taxes ordered nine geothermal IPPs and 33 oil and gas firms at the exploration stage to pay a 10 percent VAT starting 2000, a move seen by the companies as against an existing contract signed with the government.

Under the contract, geothermal IPPs or oil and gas firms under the exploration phase are allowed to delay the VAT payment until they reach the commercial production stage. They said that this was a facility introduced by the government in 1989 as an incentive to investors in the particular sectors.

The protesting IPPs and oil firms then filed a complaint with the tax court, previously known as BPSP or the tax settlement dispute body.

The tax court, however, has so far issued six mixed rulings: Four in favor of oil and gas companies Mobil Exploration Indonesia, BP Indonesia, TotalFina Elf and an IPP Unocal Indonesia, and two in favor of the Directorate General of Taxes against Kufpec Indonesia Ltd. and Amoseas Indonesia.

Riki said that Amoseas, a wholly owned IPP of American firm Chevron Texaco, is planning to file an appeal at the Supreme Court.

He added that other IPPs would make a similar move if the outcome of the court ruling went against them.

"At present, Amoseas Indonesia, who lost its legal battle at the tax court last week, has confirmed an appeal to the Supreme Court," he said.

According to a source close to the legal battle, Amoseas had already paid some Rp 76.4 billion (US$8.2 million) in VAT.

The companies are required to pay the VAT first before going to the tax court.

The Directorate General of Taxes has taken the controversial measures in a bid to meet tax revenue targets in the state budget. It could raise some Rp 2 trillion in additional VAT from these companies.

The IPPs criticized the new policy, saying it would only hamper investment in the country.

Officials of state-owned oil and gas firm Pertamina said the protesting IPPs may bring the case to international arbitration, which in many cases have inflicted multi-million dollar losses on the government.