With regard to Indonesia fiscal policy, the Indonesian government has issued the Regulation of the Minister No. 122/PMK.03/2019 on Facilities of Value-added Tax or Value-added Tax and Luxury-goods Sales Tax, Land-and-Building Tax, and Tax Treatment upon Imposition of Sharing Facilities Operational Cost and Indirect Cost Budgeting Expense of the Headquarters.
This Indonesia fiscal policy has changed the tax circumstances for oil and gas contractors as it provides fiscal tax incentives of the mentioned tax for oil and gas operators, removing the major barriers for investments in oil and gas production in the exploration stage, and thus boosting the industry in the country.
This regulation was signed by the finance minister on August 27, 2019 and came into effect on September 27, 2019. This article outlines the relevant scopes and their details under Regulation 122/2019.
Scope of Regulation 122/2019
The key points in regard to the fiscal incentives for oil and gas contractors in Regulation 122/2019 are:
- Tax facilities scope
- Eligible KKKS (Kontraktor Kontrak Kerja Sama) scope
- Cost-sharing and indirect-cost tax treatments
- Securing tax facilities
Tax Facilities Scope
Value-added tax PPN and luxury-goods sales tax PPnBM, and land-and-building tax PBB are two taxes that are applicable for tax facilities.
- PPN and PPnBM will not be collected for certain activities conducted during the exploration and exploitation phases. These activities include certain taxable goods or services acquisition, and utilisation of certain outside-custom goods or services within custom areas
- Full PBB deduction as shown in the payable tax return
Eligible KKKS Scope
Eligible KKKS to invoke the mentioned tax facilities include the following:
- KKKS with their Oil and Gas Corporation Contracts signed in accordance with Regulation 79/2010 before the effect of Law 22/2001; or after the enactment of Oil and Gas Law but before the enforcement of Regulation 79/2010
- KKKS with their Oil and Gas Corporation Contracts signed after the effect of Regulation 79/2010 and in full compliance with the regulation. The said KKKS must also be eligible for operational cost reimbursements
Cost-sharing and Indirect-cost Tax Treatments
KKKS’ expenses from cost-sharing operations in the upstream oil and gas sector when utilising the state-owned goods are exempted from the income tax withholding. In addition, PPN does not apply for taxable services transfer when the KKKS meets the following criteria:
- Purchase and use state-owned goods for operations stated in the contract
- The use of state-owned goods in shared facilities is approved by the SKK Migas
- The use of shared facilities is not designed to generate profits
Apart from that, indirect-cost expenses are exempted from withholding income tax as well as PPN, when the KKKS fulfills certain requirements:
- The incurred expenses are to support business operations and activities in the Indonesian territory
- The KKKS must submit their headquarter’s audited financial statements
- Expense amount should not exceed the set limit
Securing Tax Facilities
The following procedure is set out in order to secure the tax facilities for oil and gas contractors in Indonesia:
- Submit application and required documents to the tax office. The documents consist of exploration statement letter from MEMR and copies of production-sharing contracts.
- The head of relevant tax office issues SKFP (Surat Keterangan Fasilitas Perpajakan) for exploration or exploitation stages within 7 days upon the receipt of the application.
- The exploration SKFP has the same validity as the period of the production-sharing contracts; and the exploitation SKFP is valid from the approval date of the first field or further field development.
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