The Ministry of Finance of the Republic of Indonesia has just issued Minister of Finance Regulation Number 122/PMK.03/2019 ("PMK 122"), which regulates tax facilities for oil and gas contractors under the PSC Cost Recovery regime. PMK 122 is issued pursuant to Article 26A to 26D of Government Regulation Number 27 of 2017 ("PP 27") and provides the following tax facilities:

  • Value Added Tax or Sales Tax on Luxury Goods ("PPN/PPnBM") not collected
  • Land and New Building Tax ("PBB") reduction
  • Withholding Tax ("WHT") and PPN exemption for cost sharing and head office allocation.

Implication for Taxpayers

These tax facilities are actually not new in the upstream oil and gas industry. Most of them have been adopted for years as best practice until DGT started challenging them due to the enactment of Government Regulation Number 79 of 2010 ("PP 79"). Therefore, PMK 122 at least provides legal certainty for the industry.

Having said that, one noteworthy point in PMK 122 is that the WHT and PPN exemption for cost sharing and head office allocation transactions are effective since the introduction of PP 27. This might create dispute for contractors with transactions that still have open years for tax audits, or are still within the statute of limitations period to issue an assessment.

It is also noteworthy that under Article 2, oil and gas contractors that want to enjoy the facilities must first bring their PSC contracts signed before the enforcement of PP 79 fully in line with PP 27. However, the procedure on how and to what extent the PSC contracts should be adjusted is not explained further. It will be interesting to see whose domain it will be to issue further guidance on this particular arrangement, whether it will be SKK Migas, the Minister of Finance (with another PMK), or the oil and gas contractor together with the Government of Indonesia (by way of a PSC amendment mechanism)..