T

he government needs to set out a reward and punishment system for extractive industries to report their taxes and royalty payments to encourage transparency in the sector which makes a large contribution to the state budget, a local energy think tank has said.

The Institute for Essential Services Reform (IESR) has argued that the government specifically needs to revise Presidential Regulation No. 26/2010 on the transparency of national and local revenue from the extractive industry, which currently contains no sanctions.

'€œWe encourage the revision in line with the current situation and impose punishment for companies that do not submit their reports to the government,'€ IESR executive director Fabby Tumiwa said on Monday.

The sanctions could be in the forms of higher export duties or the postponement of mining business license (IUP) extensions, according to Fabby. The government did not need to close down the businesses as the purpose of the regulation was only to discipline extractive industry companies to ensure transparency in the sector, he added.

The government on Monday released the Extractive Industries Transparency Initiative (EITI) Indonesia report, which revealed discrepancies in state revenues and companies'€™ tax and non-tax payment reconciliation for the year 2012 to 2013 as well as dozens of noncompliant companies.

The report noted that out of 174 oil and gas companies, 10 had not submitted their taxes and royalty payment reports. Meanwhile, as many as 21 mineral and coal mining companies out of 108 covered did not make royalty payment reports.

EITI, a global standard of transparency for revenues flowing from the oil, gas and mining industries, stipulates that oil and gas companies that have started production and mining companies that pay royalties above Rp 25 billion (US$1.82 million) are encouraged to submit their tax and royalty payment reports.

EITI Indonesia chairman Monty Girianna admitted that the initiative system was still voluntary. '€œCurrently, there is no reward and punishment system for the companies,'€ he said.

Secretary for the Office of the Coordinating Economic Minister Lukita Dinarsyah Tuwo said that the challenges faced by the country were the establishment of a reward and punishment system and regulation synchronization. '€œWe will improve the system in the future,'€ he promised.

Meanwhile, the EITI report stated that oil and gas sector'€™s tax and non-tax revenues reconciliation in 2012 and 2013 amounted to $35.78 billion and $31.64 billion, respectively, with discrepancies ranging from 0.001 percent to 2.32 percent.

In the mineral and coal mining sector, the tax and non-tax reconciliation total amount reached Rp 9.68 trillion and $4.37 billion in 2012. As much as Rp 8.46 trillion and $3.4 billion of total tax and non-tax reconciliation values were recorded in 2013.

Discrepancies booked in the sector range between 0.005 percent and 3.83 percent. '€œThe discrepancies are caused by different measurement and calculation methodologies used by the government and the companies,'€ Montty explained.

Indonesia'€™s status as a compliant state has been suspended since February by the EITI initiative as it failed to submit the 2012 report by the deadline in December last year.

The government will submit the 2012 and 2013 reports simultaneously to the initiative this month with the hope that the suspension can be revoked in December this year '€” the deadline of the 2013 report submission '€” Monty said.