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Jakarta, Ideatax -- The World Bank reported that the Brent crude oil price in October 2023 decreased compared to the previous period. In October 2023, the price of Brent crude oil was USD 91 per barrel whereas in the September 2023, crude oil price was USD 94 per barrel.
The same thing happened to the price of West Texas Intermediate (WTI) crude oil. In September 2023, the WTI crude oil was set at USD 89.59 per barrel. The price of WTI oil decreased to USD 85.57 in October 2023 (Ahdiat, 2023) with the following details:
Based on the graph above, we can see that world oil prices fluctuated during the period January 2020 to November 2023. There are many factors that affect fluctuations in world oil prices apart from demand and supply. One of them is tariffs and tax policies.
A concrete example can be found when a war broke out between Russia and Ukraine in 2022. At that time, there was a very significant increase in oil prices in Europe due to the war. In order to reduce the impact of the price increase, EU countries provided tax rebates on the sale of oil and diesel (Gars, Spiro, & Wachtmeister, 2022). As a result, there was an increase in profits for oil producers, which triggered an increase in production. In the long run, the increase in supply brings the supply and demand curves to a new equilibrium point.
In Indonesia, the imposition of income tax on oil and gas exploration and exploitation activities is regulated in a special provision as stipulated in Article 31 of the Income Tax Law.
Article 31D of Law No. 7 of 1983 on Income Tax as amended by Law No. 7 of 2021 on Harmonization of Tax Regulations mandates that provisions regarding taxation for oil and gas mining business, geothermal business, general mining business including coal and sharia-based business are regulated under government regulations.
Furthermore, the provisions of Article 31D are technically elaborated in Government Regulation Number 53 of 2017 concerning Tax Treatment for Upstream Oil and Gas Business Activities with Gross Split Production Sharing Contracts. Based on these provisions, among others, it is regulated that income tax for upstream oil and gas business activities is calculated by multiplying the tax rate by taxable income. The taxable income for upstream oil and gas business consists of the following components:
a. Gross Income
There are two primary components of the gross income of contractors in oil and gas exploration and exploitation activities, including income in the context of oil production sharing and income other than in the context of oil production sharing. Income in the context of production sharing is the contractor's income calculated based on the realized value of oil and gas produced by the contractor minus the realized value of Domestic Market Obligation (DMO) oil and gas plus DMO rewards plus or minus the price variance on lifting. Other income is the contractor's income derived from uplift, participation interest, upstream business activities and other income that provides additional economic capability.
b. Operating Costs
In calculating the amount of taxable income, oil and gas contractors are allowed to deduct gross income from operating costs. There are three types of operating costs allowed: exploration costs, exploitation costs, and other costs.
Exploration costs are costs incurred by the contractor in the context of drilling or exploration, general and administrative costs in exploration activities and geological and geophysical costs.
In addition, contractors are also allowed to charge exploitation costs which include development drilling costs, direct production costs for oil and gas, utility costs, general and administrative costs in exploitation activities, depreciation costs, and amortization costs.
Meanwhile, other costs are costs incurred by the contractor to move oil from the point of production to the point of delivery, post-operation costs of upstream business activities, oil and gas marketing costs, investment replacement costs and other costs associated with petroleum operations.
In addition to being subject to income tax in accordance with the provisions of Government Regulation No. 53 of 2017, the income of oil and gas contractors derived from Participating Interest is also subject to income tax in accordance with Government Regulation No. 93 of 2021 concerning Income Tax Treatment of Transfer of Participating Interest in Upstream Oil and Gas Activities.
The main objective of the issuance of this regulation is to provide legal certainty in the application of Income Tax on the transfer of participating interest while creating a conducive investment climate in upstream oil and gas activities. In substance, PP 93 of 2021 regulates that participating interest is immovable property owned directly or indirectly. Furthermore, this provision also stipulates that participating interests can be diverted by selling, transferring, or releasing in another way in whole or in part. The rate charged for the transfer of participating interest is 5% for the transfer of participating interest during the exploration period and 7% for the transfer of participating interest during the exploitation period.
Based on the DGT's annual report, it is found that the target of oil and gas income tax in 2021 was IDR 45.8 trillion. From the target, DGT can collect oil and gas income tax revenue of IDR 52.89 trillion. In other words, the achievement of oil and gas income tax revenue in 2021 amounted to 115.48%, or an increase of 59.88% compared to the previous year (DGT, 2022).
On the other hand, based on the October 2023 edition of our APBN report, it is known that the target of oil and gas income tax in 2023 is 61.44 trillion. As of September 30, 2023, DGT has successfully collected oil and gas income tax amounting to 54.31 trillion or 88.40% (Ministry of Finance, 2023).
Considering the higher tax revenue from oil and gas sector, we can conclude that tax revenue from oil and gas sector is one of the significant elements in state revenue. In fact, it is not uncommon for the oil and gas sector to be a priority target of state revenue by the DGT. Therefore, taxpayers in oil and gas industries should know their tax rights and obligations in depth.
References
Ahdiat, A. (2023, November 11). Databoks. Retrieved from Katadata: https://databoks.katadata.co.id/datapublish/2023/11/07/meski-israel-hamas-perang-harga-minyak-dunia-turun-pada-oktober-2023
DJP. (2022). Laporan Tahunan 2021. Jakarta: DJP.
Gars, J., Spiro, D., & Wachtmeister, H. (2022). The effect of European fuel-tax cuts on the oil income of Russia. Nature Energy, 989 - 997.
Kemenkeu. (2023). APBN Kita Edisi Oktober 2023. Jakarta: Kemenkeu.
