Indonesia Dropping tax on Oil Exploration

January 17, 2015 Taxation in Indonesia

JAKARTA – The government of Indonesia is hoping to boost the national production of oil by as much as 12.5 percent, and is dropping taxes faced by companies exploring for oil and gas in the country.

On January 16th the Finance Ministry of Indonesia issued a statement proclaiming that effectively from January 1st businesses operating in the oil and gas industry will no longer need to pay land tax, if the business is only in the exploration phase of operations.

According to Wahju Tumakaka, a spokesperson for the Finance Ministry, the previous interpretation of the tax was land, as the land taxes “…is supposed to be applied for those using Indonesian land”, and the exploration should not be qualified as the use of land.

Previously the tax was levied at a rate of 0.5 percent, and in the year 2014 it resulted in the collection of IDR 18 trillion tax revenues, a level of equivalent to 1.2 percent of the government’s tax revenues for the year.

The removal of the land tax is expected to encourage more businesses to invest into oil exploration and production in Indonesia.

The government of Indonesia is currently hoping to see the national production of oil rise from 800 000 barrels per day to 900 000 barrels per day.

Photo By: L.C. Nøttaasen