Indonesia to Renegotiate "Outdated" Oil and Gas Contracts

The Indonesian government has stated that it plans to launch talks to renegotiate oil and gas cooperation contracts with foreign companies that have been paying less than 20 percent branch profit taxes (PBDR) to the country.

Fuad Rahmany, the Finance Ministry’s director general for taxation, while declining to identify the companies,said in Jakarta on Wednesday that they are British and Malaysian firms that have been paying  PBDR tax rates of 10 percent and 12.5 percent respectively for years on the basis of bilateral tax  treaties between Indonesia and the companies' home countries.

"This is a problem of prior contracts and tax treaties that no longer comply with today's regulations. The finance minister has indeed ordered reviews of tax treaties with those countries," Rahmany said.

His statement came during a hearing with the House of Representatives Commission XI overseeing financial affairs. The hearing discussed 'tax debts' totalling about Rp 1.6 trillion (US$187.2 million) owed by 14 foreign oil and gas firms operating in Indonesia.

The figure was announced last week by the Corruption Eradication Commission (KPK).

"But renegotiation won't be easy because this involves other nations. We'll need diplomacy to try and convince them that their tax treaties are outdated,' Fuad said.

The debts, he felt, were basically the result of disputes between the Development Finance Comptroller (BPKP) and the foreign firms signing the contracts (KKKS) over the PDBR rates to be paid.

While the BPKP insisted that the PBDR rate should be 20 percent, in line with the 2003 Law on Oil and Gas, while the KKKS argued that the tax treaties and contracts were signed before the law was  ratified.

According to him,the Finance Ministry is expected to start the renegotiation talks by the end of the year in close liaison with the foreign ministry.