Oil firms confused by VAT rulings

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.