Does PMK-218 Violate PSC Principle?

By DM Budiarta

On 5 December 2014, the Minister of Finance (MoF) issued MoF Regulation number 218/PMK.02/2014 (“PMK 218”) regarding The Procedures for Reimbursement VAT  in Upstream Oil and Gas Activities to be effective on 2 Feb 2015.  PMK-218 revokes PMK-64/PMK.02/2005 and it provides some administrative changes in reimbursement procedure starting 2015, among others:

1. Tax Clearance Certificate (“SKF”/Surat Keterangan Fiskal) from Tax Office should be attached on the reimbursement application. To follow up this requirement, Directorate General of Taxes (DGT) has issued  procedure to obtain the SKF through PER-32/PJ/2014 (“PER-32”),  however,  PER-32 is mostly intended for tax clearance in procurement process, not specific for reimbursement process. Thus,  PER-32 is not appropriate to be applied for oil and gas industry because it will generate  administrative burden to obtain tax clearance every time PSC contractors file for reimbursement.
   Furthermore, PER-32 has financial impact to PSC contractors as well. One of requirement in PER-32 that should be satisfied to obtain tax clearance is a taxpayer does not have tax arrears in any type of taxes. Apparently the government try to force PSC Contactors  to pay the disputable tax assessment (which may be still in objection or appeal process) in order to be qualified for VAT reimbursement.
2. Involvement  of more government agencies for documents verification, such as:
   a.     Tax invoices reporting  will be verified by the Directorate General of Taxes i.e. the relevant Tax Offices  in 20 working days;
   b.    Completeness of reimbursement request will be verified by Directorate General of Budget (“DGB”), unfortunately  number of days is unclear;
   c.     Tax payment slips will be confirmed to the relevant banks, however no clear time frame as previously 30 days in PMK-64;
   d.     Reimbursement documents will be verified by SKK Migas  but no clear time frame as previously 45 working in PMK-64. SKK Migas has issued  letter No. SRT-0322/SKKC1000/2015/S4 dated 24 Feb 2015 regarding procedure for implementing PMK 218. In that letter, SKK Migas provides standard forms in claiming for VAT  reimbursement.

Although the title of PMK-218 is The Procedures for Reimbursement VAT  in Upstream Oil and Gas Activities, however, it does not cover only procedures but also it provides some provisions that violate PSC principles.  Some key points which potentially generate challenges by PSC Contractors are as follow :

• The maximum reimbursement amount should   equal to the Government Share, but exclude FTP (First Tranche Petroleum);
• SKK Migas may recalculate the reimbursement value after taking into account the “Contractor’s Over Lifting” that is due (unclear whether this includes any disputed amount);
• VAT reimbursement shall exclude from, among others:
  a.       VAT on import with exemption facility
  b.      VAT from LNG plant operation for gas processing up to sales.

In Profit Sharing Contracts (PSC), the government shall reimburse VAT out of its government share without any limitation (such as excluding FTP portion). Therefore many PSCs are questioning the rationale of PMK-218 to exclude FTP portion from the basis of reimbursement. This provision will impact cash flow of the PSC contractors hence it will take longer time to receive reimbursement from Government.

PSC Contractors is questioning the rationale of excluding VAT from LNG processing as well. As we know, LNG for gas processing is part of upstream activities, especially for contracts signed before Law 22/2001 on Oil and Gas applied. However, Ministry of Finance (MoF) has an opinion that LNG processing is covered by separate contract with Trustee Borrowing Scheme (TBS) mechanism and there is no provision for reimbursement of VAT in TBS. Therefore, MoF suggests that VAT for LNG processing is treated as part of TBS cost. Apparently government tries to increase its revenue by treating VAT as part of  TBS cost  because  VAT will be born jointly by Government and Contractors according to profit split in PSC.

Those violation of PSC principle  by PMK-218  have impacted on the huge amount of un-reimbursable VAT and it will  affect the project economic as well. Currently, PSC contractors have sent letters to related government agencies to express disagreement of such violation and requested for PMK-218 revision.

Attachment:

PMK-218-2014-ttg-Tata-Cara-Pembayaran-Kembali-PPN-PPnBM-ats-Perolehan-BKP-JKP-Kpd-Kontraktor-dlm-Keg.-Usaha-Hulu-Minyak-Gas-Bumi.pdf

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