The Ministry of Finance has issued a regulation related to the provisions on Value Added Tax (VAT) (Pajak Pertambahan Nilai/PPN) and the Motor Vehicle Fuel Tax (Pajak Bahan Bakar Kendaraan Bermotor/PBBKB) in the calculation of the fuel oil compensation fund.

These provisions are outlined in the Minister of Finance Regulation No. 159/PMK.02/2021 concerning Procedures for the Provision, Disbursement and Accountability of Compensation Funds for the Revenue Shortfall of Business Entities Due to the Policies on Retail Selling Price Setting of Fuel Oil and Electricity Tariffs (MoF Reg. 159/2021). Promulgated on 18 November 2021, this regulation came into force thereafter.

As per Article 5 paragraph (1) of MoF Reg. 159/2021, BBM compensation funds consist of compensation funds for certain types of gas oil BBM and compensation funds for special assignment BBM. BBM funds are calculated based on audit findings and/or calculation reviews by competent auditors.

On a side note, BBM compensation funds refer to compensation funds paid by the government to a business entity for the entity’s revenue shortfall due to the difference between the retail selling price of certain types of BBM and/or special assignment BBM based on the calculation of a formula and the retail selling price of certain types of BBM and/or special assignment BBM.

If based on audit findings and/or calculation reviews, there is a revenue shortfall for a business entity due to the difference between the retail selling price of certain types of gas oil and/or special assignment BBM, the Ministry of Finance shall stipulate policies on BBM compensation funds after coordinating with the Minister of Energy and Mineral Resources (Energi dan Sumber Daya Mineral/ESDM) and the Minister of State Owned Enterprises (Badan Usaha Milik Negara/BUMN). BBM compensation fund policies shall be outlined in a letter from the Minister of Finance.

In the event that the Minister of Finance determines policies on the reimbursement policy for the business entity’s revenue shortfall, there are three implications. First, the basic price contained in the business entity’s revenue shortfall shall be paid to said business entity.

Second, VAT contained in the business entity’s revenue shortfall shall be settled as per statutory provisions on taxation and shall not be paid to the business entity.

Third, PBBKB on compensation funds contained in the the business entity’s revenue shortfall, shall not be included in the taxable objects of local taxes as per statutory provisions on taxation and shall not be paid to the business entity.

On the other hand, if based on audit findings and/or calculation reviews, there is an excess of revenues for a business entity due to the difference between the retail selling price of certain types of gas oil BBM and/or special assignment BBM, the Ministry of Finance shall determine policies on the business entity’s excess of revenues after coordinating with the Minister of ESDM and the Minister of BUMN. The policy on business entities’ excess of revenues shall be outlined in a letter from the Minister of Finance.

If the Minister of Finance determines policies on business entities’ excess of revenues, these business entities must submit a notification letter on the settlement of VAT and PBBKB to the State General Treasurer Budget User Proxy (Kuasa Pengguna Anggaran Bendahara Umum Negara/KPA BUN) on compensation funds no later than seven working days after the Minister of Finance’s letter is received by the business entities.

The notification letter concerning the settlement of VAT and PBBKB shall be prepared in accordance with the format listed in Appendix F of MoF Reg. 159/2021. VAT on business entities’ excess of revenues may be settled in two ways. The two methods include the reduction of payment of VAT liabilities on BBM compensation funds in previous years and/or overbooking from the tax revenue account to the state treasury account.

Value Added Tax and Motor Vehicle Fuel Tax in the Calculation of the Fuel Oil Compensation Fund