Analysts call for adoption of oil windfall tax

Alfian ,  The Jakarta Post ,  Jakarta   |  Tue, 07/22/2008 10:14 AM  |  Business

Activists and energy analysts continue to pile pressure on the government to issue a special tax on windfall profits reaped by oil and gas companies.

Marwan Batubara, a member of the Regional Representatives Council (DPD), said Monday a windfall profit tax for oil and gas firms would be a fair measure to help relieve the burden of high gas prices on Indonesians.

"Oil and gas, just like other natural resources, belong to the people. But, it is the people who are suffering from skyrocketing oil prices.

"On the other hand, with little effort, oil and gas firms are gaining tremendous profits from the hike," Marwan said Monday during a seminar.

International oil and gas companies have in the last four years doubled and even tripled their profits due to increasing oil prices, he said.

In last year's state budget, the international oil price was set at $60 per barrel.

However, with the current global price fluctuating around $140 per barrel, oil companies operating in Indonesia are estimated to gain up to a total of Rp 40.73 trillion in profits this year, he said.

"If the government applies a windfall profits tax of 50 percent, our state income will increase by Rp 20.36 trillion per year," Marwan said.

Marwan said other countries, including Venezuela and the United Kingdom, had enacted such taxes. He said Venezuela imposed a 50 percent tax rate for oil sold at more than $70 per barrel, climbing to 60 percent for oil priced higher than $100 per barrel.

The U.S., Malaysia and India are also facing political pressure to enact such taxes, Marwan said.

Other speakers in the forum supported the notion.

Energy analyst Kurtubi said the tax would be fair as companies were not enjoying windfall profits due to the caliber of their strategies, investments or technologies but merely because of the soaring global prices.

However, Kurtubi said that such a tax would be best introduced in conjunction with measures designed to create a more conducive investment climate for the industry.

"The government must for instance simplify the investment procedures and withdraw the production tax," Kurtubi said.

Riza Noor Karim, a director of tax examination and collection of the Directorate General of Tax Affairs, said the country already gained extra income from oil and gas revenue tax due to the skyrocketing oil price, but welcomed the notion of adopting a tax for high profits nevertheless, before adding that such a revision was currently impossible.

"We do not have any legal basis for the windfall profits tax."

Under existing regulations, a revision to existing working contracts between the government and companies is required if the government wishes to slap extra taxes, including on windfall profits.

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