Oil firms confused by VAT rulings

Moch. N. Kurniawan, The Jakarta Post, Jakarta

Oil and gas companies operating in Indonesia have been confused by two conflicting rulings issued by a special government agency in a tax dispute case, according to the president of the Indonesian Petroleum Association (IPA), Brian Marcotte.

Marcotte said on Monday that such conflicting rulings could hamper badly needed investment in the country's oil and gas sector.

"The panels hearing each individual case insist that they're impartial and not bound by precedent. This results in inconsistencies," he told The Jakarta Post.

Around 30 oil and gas firms filed objections last year with the BPSP (Tax Disputes Settlement Board) against a government tax ruling requiring them to pay value added tax during the exploration stage.

The board recently handed a victory to American firm Mobil Oil Exploration Inc., but it ruled in favor of the government in a case involving Kuwait oil giant Kufpec.

Marcotte believed that the ruling in the Mobil case was the correct one because it was in line with the Production Sharing Contract (PSC) signed between oil and gas investors and the state-owned oil and gas firm Pertamina.

The new VAT policy was launched on Jan. 1, 2000. Previously oil and gas firms at the exploration stage could postpone the payment of the VAT until they began commercial production.

The government issued the controversial policy due to pressure to collect higher tax revenues to help finance the deficit- plagued state budget.

The government expects to benefit to the tune of Rp 2 trillion (about US$200 million) in additional tax revenues from the new VAT policy.

But oil and gas firms have said that the new policy runs counter to the PSC scheme.

They also claimed that based on the PSCs, it was Pertamina that should cover the various tax expenses as oil and gas investors had allocated 75 percent of their oil output to the state firm as the representative of the government.

Marcotte said the government should avoid making conflicting decisions as these would hamper investment in the country.

"If Indonesia wishes to continue to create an attractive investment climate for investors, especially those in the oil and gas industry, it should not allow decisions to be taken that erode the economics and make it unfavorable for investment," he said.

Meanwhile, Director General of Oil and Gas Rachmat Sudibyo declined to comment on the issue, claiming that he had yet to be informed of the rulings.