Indonesia introducing gross-split scheme

Indonesia’s government announced Friday that it is working on regulations and policies meant to clarify the tax regime associated with the nation’s new gross-split model. This flurry of activity takes place amid Indonesia’s ongoing bid round in an effort to beat the round’s November deadline.

In developing regulations for the new PSC model, Indonesia is attempting to iron out what taxes would be applied to operators and when payments related to taxable revenue would be due.

Under the gross-split scheme, taxes are waived during the exploration phase for operators until profits reach pre-specified levels. Additionally, companies are allowed to delay paying taxes during exploration while developments are reaching optimal production.

The new taxation policies are being refined in an effort to attract upstream investors. Only applicable to newly awarded contracts, the gross-split PSC model offers better terms for acreage with no existing infrastructure.

Regardless of the changes, investors are still assessing the viability of the new contracting vehicle and tax policy. “The tax scheme applicable to gross split production sharing contracts remains the key missing piece in the framework governing the gross split PSC that has made it difficult for investors to make a fulsome assessment of the economic viability of the gross split scheme,” law firm Linklaters has related.