The government has taken steps to address Indonesia's declining oil production by providing fiscal incentives to oil and gas operators. The incentives are codified in Regulation 22/PMK.011/2011, which stipulates that the government will waive value-added tax (VAT) on goods imported for the purposes of upstream oil and gas activities or geothermal exploration for the budgetary year 2011.

Goods that are required for exploration activities qualify for the VAT incentive if they are:

  • not yet produced locally;
  • produced locally, but not to the required specifications; or
  • produced locally, but not in the required quantities.

Article 3 of the regulation stipulates that entrepreneurs engaged in commercial oil, gas and geothermal activities qualify for the VAT incentive if they:

  • have a binding joint operating contract with the government for oil and gas activities;
  • have a binding contract with the government for geothermal activities;
  • have obtained a geothermal mining business licence since December 13 1994; or
  • have been assigned by the government to conduct initial surveys to identify geothermal potential.

Applications for the VAT incentive must be submitted to the director general of customs and excise, attaching a goods importation plan that has been approved and validated by the director general of oil and gas or the director general of renewable energy and energy conservation.

The regulation came into force on February 7 2011 and is effective until December 31 2011.

For further information on this topic please contact Hamud Balfas at Ali Budiardjo, Nugroho, Reksodiputro by telephone (+62 21 250 5125), fax (+62 21 250 5121) or email ([email protected]).