Provisions Relaxed for the Reimbursement of PPN and PPnBM for Upstream Oil-and-Gas Business Activities

The Ministry of Finance (“Ministry”) has finally issued Regulation No. 158/PMK.02/2016 (“Regulation 158/2016”), which amends Ministry Regulation No. 218/PMK.02/2014 (“Regulation 218/2014”) on Procedures for the Reimbursement of Value-Added Tax or Value-Added Tax and Luxury-Goods Sales Tax for Taxable Goods and/or Services to Upstream Oil-and-Gas Contractors.
 
Regulation 158/2016 aims to determine the procedure for calculating any reimbursement of value-added tax (pajak pertambahan nilai – “PPN”) or PPN and luxury-goods sales tax (pajak pertambahan nilai dan pajak penjualan atas barang mewah – “PPnBM”) paid by upstream oil-and-gas contractors (“Contractors”). For this purpose, Regulation 158/2016 redefines the “State’s shares”, as stated in any cooperation or production sharing contract (PSC) held between the State and Contractors, as well as allow for any PPN and PPnBM which relate to Liquefied Natural Gas (LNG) refineries to be reimbursed.[1]
 
State’s Share
 
Contractors who explore and exploit upstream oil and gas in certain areas across Indonesia are entitled to seek reimbursements for any PPN or PPN and PPnBM which has been paid on taxable goods and/or services. This facility can be obtained after the Contractors have first deposited the “state’s share”, as stated in the relevant cooperation contract or PSC.[2]
 
Under the Amendment, this state’s share now comprises of two main elements, specifically: 1) First Tranche Petroleum (“FTP”), which refers to any total production of raw oil and/or gas per year (excluding any deductions made owing to any operational-cost repayments and production management/own use); and 2) Split Equity (“Equity”), which refers to the total production of oil and/or gas – (FTP + repayment of operational costs).[3]