Importation Facilities for Producing PSC
Upstream industry is becoming more important and strategic in Indonesia due to rapid growth of consumption domestically. Indonesia upstream environment has slow development in term of new oil and gas discovery, and in the same time facing declining in production volume. In order to boost upstream activities, Government has been providing some incentives to the PSC’s company especially for PSC in explorations periods, one of the incentives is tax free importation. The facilities are commonly known as “Masterlist Facilities”.Refer to Government Regulation (GR) 79/2010 article 25, PSC Contractors both in exploration and exploitation periods are exempted from payment of import duty, and importation taxes (VAT Import and Income Tax Article 22) for any imported goods/material used in upstream activities. It is further stipulated that those facilities are implemented in accordance to the applicable regulations. Based on that provision, it is clear that any new PSC Agreement/Contract signed after GR 79/2010 will obtain exemption of import duty and importation taxes during its exploration and exploitation/producing periods.Equal treatment is also applied to PSC that has PSC contract signed before commencement of GR 79/2010. Article 38 (Transition Provision) provide that equal treatment. Within 3 months after commencement of GR 79/2010, any provision that haven’t regulated or insufficiently regulated in the older PSC shall be adjusted following the GR 79/2010 provision, included exemption of import duty and importation taxes for exploration and exploitation PSC. As per GR 79/2010, after 3 months of commencement date, older PSC Contractors are exempted from paying import duty and importation taxes.
Masterlist Facilities in Practice
Free import duty facility available under Ministry of Finance Regulation (PMK) No. 177/2007, while Income Tax Article 22 exemption provided under PMK 154/2010 (previously PSC Contractors shall apply Exemption Letter according to general provision). Even though free of import duty and Income Tax Article 22 facilities are equal for exploration and producing PSC but in practice there is significant difference in regards of VAT Import exemption.
During 2008-2011 periods, for exploration PSC, Government provided VAT Importation facility in which Government borne the VAT payable on annual basis. Government allocated some budget to pay the VAT import. In early 2012, after some review and evaluation, Government no longer allocated some budget for that VAT and changed the form of facility in to uncollected VAT Import, under new regulation PMK No 27/2012. Based on PMK 27/2012, explorations PSC are continuously enjoy the VAT exemption incentive.
A different situation is experienced by Producing PSCs who have contracts signed after Migas Law No 22/2001. The implementation of Masterlist facilities (especially VAT Import facility) as follows:
- PSC before Migas Law No. 22/2001
PSC Contracts were signed before Migas Law No 22/2001 commonly have a release clause for paying any other taxes including importation taxes except corporate and dividend taxes (branch profit taxes).
Except with respect to CONTRACTOR’s obligation to pay the income tax and the final tax on profit after tax deductions, assume and discharge all other Indonesia taxes of CONTRACTOR including value added tax, transfer tax, import and export duties on materials, equipment and supplies brought in to Indonesia by CONTRACTORS, its contractors and subcontractors, exactions in respect of property, capital, net worth, operations, remittances or transactons including any tax or levy on or in connection with operations performed hereunder by CONTRACTOR
Since GR 79/2010 honor the sanctity of the Contract, the above releasing clause will last until contract expiration. It is mean that PSC signed before Migas Law 22/2001 still continuing to enjoy free duties and importation taxes exemption. Free or exemption of importation taxes is further regulated under PMK 20/2005.
- PSC after Migas Law No 22/2001
Under Migas Law 22/2001, PSC companies are obliged to pay state revenues in the form of taxes and non-taxes revenue. Taxes are including payment of any import duties as well as importation taxes. PSC Contractors who have contracts signed after Migas Law are no longer enjoy free of importation taxes as per older PSC before Migas Law 22/2001. Government then separately issued regulation to make the same incentives available to those PSCs. Under PMK 177/2007, Government provided free of import duty facility for those producing PSCs. Later, exemption of income tax article 22 is also available through PMK No 154/2010. But VAT Import facility was never available for them.
Even though GR 79/2010 has stipulated the exemption of importation taxes (including VAT Import) for Producing PSCs after Migas Law 22/2001 but in practice they could not executed the VAT Import facility for some reason, mainly due to absence of implementation regulation on how the facilities will be obtained and executed. The existing implementation regulation was only applicable to exploration PSCs.
Finally, on April 2013 Government amended the implementation regulation PMK No 27/2012 by issuing PMK 70/2013. The revision expands the VAT Import exemption (uncollected VAT) to the Producing PSC or Exploitation PSC, previously was only available to Exploration PSC as per PMK 27/2012. VAT Import facility for Exploration PSC shall be obtained from Directorate General of Customs. Application shall be submitted at the same time with free import duty application. Unlike the Exploration PSC, for Producing PSC, PMK 73 is keeping silent on the procedure on how to obtain and execute the facility. There is no guidance on how the facility will be executed
Absence of further execution guidance in the PMK 70/2013 may cause the VAT facility will not able to implemented or executed in the practice. Directorate General of Customs may reject application for VAT Import facility due to absence of clauses that assigned the Directorate to issue the exemption letter.
In other words, Producing PSC may not able to enjoy the VAT Import facility because it can’t be executed in practice, even though the facility is legally available. Again, Producing PSC Contractors have to be patient waiting the facility becoming ‘truly’ available and executable.