The Finance Ministry’s tax directorate office issued a new regulation that narrowed tax requirements on land and property for oil and gas activities as well as setting tax exemptions, in a move to boost investment in the sector.
Chandra Wijaya, a spokesman for the tax directorate, said in Jakarta on Tuesday that there were few changes in the new land and property tax scheme.
The new regulation introduces a zoning scheme, meaning that tax on land and property will only apply to areas that are designated for oil and gas and geothermal activities. In the old regulation, land and property tax was applied to all areas owned by oil and gas and geothermal companies.
The new rule also sets details on areas where land and property tax will be exempted, including deepwater and offshore areas.
Aside from those initiatives there are few details on the new scheme as the tax directorate has yet to release the new regulation to the public.
Faced with aging onshore oil and gas block, the government is encouraging oil and gas companies to take more risk by venturing offshore. But that has failed to draw the necessary momentum due to government bureaucracy in oil and gas activities. Oil and gas companies had also frequently criticized the current land and property tax as discouraging investment in Indonesia.
The Indonesian Petroleum Association, an industry group, had requested tax breaks for deepwater oil and gas exploration activities. At least 15 oil and gas contractors with deep sea operations each paid between Rp 40 billion and Rp 90 billion ($3.3 million and $7.4 million) in land and building taxes last year, with the average tariff more than the exploration costs per block.
“We have submitted our objection two weeks ago to the directorate general of taxes,“ IPA chairman Lukman Mahfoedz said in a statement on Friday.
IPA estimated that the government raised Rp 2.6 trillion from 20 offshore exploration blocks last year. In total, the oil and gas upstream sector generated $31.3 billion in state revenue last year and is projected to make $30.6 billion this year.