Indonesia Property Tax Policy on Oil and Gas Upstream Business Activities to Promote National Energy Security: Quo Vadis

In 2010, Indonesia implemented regulation consisting of a new concept on cost recovery replacing assume and discharge. Under cost recovery, all contractors are requested to meet obligation on property tax in the first pace, meanwhile assume and discharge stipulate that government will bear LBT expense. LBT expense is also treated as operating cost that willrecover after the work area has reached commercial production. This new policy invited pros and cons particularly since the release of Notice of LBT Payable from Directorate General of Tax for 16 Production Sharing Contractors with a huge amount of IDR 2,6 trillion. This amount was higher than three years firm commitment and the base of LBT imposed was offshore work area in a whole as stated in a signed contract document.The imposition of LBT in the upstream oil and gas business activity has become a determinant variable for investors either existing or candidate in business forecasting and decision making on oil and gas investment. It can be seen from the decrease of candidate of investors’ participation in the tender of exploration work area in the first pace of 2013. This tender was only followed by 37,5% applicants,compared to the preceding ones that participations reached 90%. In addition, there was a propensity of investors to resign from the existing exploration projects due to the high burden of fiscal expenses. We analysed the impact of new policy concerning the upstream oil and gas business tax property on the Indonesia program of national energy security.Based on comprehensive analysis, we recommend government to amend related policy and law in order to connect with current development as well as to protect Indonesia economy and state budget. Besides, it is necessary to protect oil and gas investors and to mend the investment climate as well.