More biofuel incentives proposed

Ika Krismantari, The Jakarta Post, Jakarta

To help develop the renewable energy sector and the use of biofuels, the government is considering providing various incentives, including value-added tax (VAT) reductions for business players, and excise duty cuts for biofuel users.

Evita H. Legowo, first secretary of the government-sanctioned National Biofuel Development Committee, said Tuesday that the incentives were currently being discussed with tax officials at the Finance Ministry.

"We hope the incentives will be in place by the end of the year," Evito told The Jakarta Post.

On plans to introduce VAT cuts, Evita added that the committee had submitted two proposals, one being that the government reduce VAT by 50 percent to 5 percent, and the second being the complete elimination of the tax.

"We are still debating this," she said, adding that the reduction would offer advantages to renewable energy promoters in purchasing feedstock and equipment.

She also said that the government was considering halving the excise tax of 5 percent currently imposed on fuel used by cars, trucks and motorbikes to 2.5 percent in the case of biofuels so as to encourage their use.

The proposed incentives -- which will be implemented by way of government regulation if approved -- are based on the provisions of the energy bill currently being deliberated by the House of Representatives.

The bill, which is expected to be enacted next week, stresses the need to promote the utilization of renewable energy.

Aside from the proposed incentives, President Susilo Bambang Yudhoyono has issued a regulation that provides corporate income tax breaks for firms involved in the biofuel business.

The presidential regulation was issued after the government signed 58 deals last January worth US$12.4 billion with a number of big energy firms, including Chinese oil giant CNOOC and Malaysian oil company Genting, for the development of the sector.

"We are aware of the importance of incentives in this kind of venture. That's why we listen as much as we can to what the investors have to say," Evita said.

A number of investors, including some from abroad, have expressed interest in developing the sector here, although they say they are still waiting for more clarity and certainty from the government.

Despite all the hype, however, state oil and gas firm PT Pertamina -- which has been appointed by the government as the country's sole distributor of biofuels -- has been complaining about how it continues to suffer losses from this side of its business.
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