Government Agrees to Bear VAT for Imported Goods for Upstream Oil & Gas Activities

In order to increase upstream production of oil, gas, and geothermal energy the Minister of Finance has issued Regulation No. 178/PMK.011/2007 to provide fiscal incentives to upstream businesses in the form of bearing the cost of any value-added taxes on the imports of necessary equipment to maximize production capabilities. The Regulation relates specifically to exploration activities and the equipment required for this purpose.

This fiscal incentive can be claimed on relevant equipment where that equipment is not produced domestically. The exemptions can also be claimed where the goods are produced domestically but the quality or the quantity is not in accordance with the needs of the businesses making the claim.

The businesses than can make the claims are those that are already in a Joint Work Contract with the Government based on the provisions contained in Law No. 22 of 2001 or those businesses involved in the exploration of geothermal reserves who signed a Joint Work Contract with the Government or who have been granted a permit after 31 December 1994.

The Government will bear the VAT cost on the listed goods as of 1 January 2008.

The application process requires the submission of a Goods Import Plan (Rencana Impor Barang / RIB) for a 12-month period signed by either the Director General of Oil and Gas or the Director General of Minerals, Coal, and Geothermal Energy depending on whether the application is for oil and gas or whether it is for geothermal energy. The RIB must include, among others, the name of the contractor; taxpayer number; address; basic contract; the Customs Office where the goods are to be imported through; the tariff code; and the number and estimated cost of the goods to be imported.

The Regulation was issued on 28 December 2007 and will be in force from 1 January 2008 through to 31 December 2008.