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Industry Guide:

Petroleum Upstream

 
Please click here to download complete guide.

 

FREQUENTLY ASKED QUESTIONS 

1. My company has signed a PSC agreement to operate a block in the peninsular of Malaysia. We are still on exploration phase but can we register under GST in order to claim input tax credit on purchases of materials and equipment that we have bought for exploration and drilling purposes? 

Since your company has a written contract to carry on petroleum upstream activities and intend to make a taxable supply, you may apply for voluntary registration under the GST to qualify you to claim input tax credit on such purchases. Please refer to GST Guide on Registration for detailed explanation on voluntary registration. 

2. Under the Production Sharing Contract (PSC), cost incurred by PSC contractors for the petroleum operation will be reimbursed and charged into the PSC joint account. Will such charges e.g. secondment of staff be disregarded for GST purposes?

Yes, such charges shall be disregarded if they are incurred for the purpose of carrying on the business of the joint venture.

3. Will PSC contractors be able to claim Input Tax Credit (ITC) on their allocated share of expenditures based on the Joint Interest Billing (JIB) statement issued by the operator or JOC, i.e. treat JIB statement as a valid tax invoice?

No because JIB is just a statement of expenditures. The venture operator or JOC will bear the GST incurred on their purchases but later will be able to claim the ITC from the Customs. Each venturer (PSC contractor) however, need to account for the output tax on supplies made from his share of the joint venture.

4. Can “borrow and return” activities undertaken within the same PSC arrangement be excluded from GST i.e. treat as an “out of scope”? This “borrow and return” activities are carried out to ensure continuous running of operations and minimise business disruptions.

If “borrow and return” activity involves borrowing and returning of equipment, it is not considered as a supply of goods because the same equipment borrowed will be returned to the owner and it does not involve any consideration. Thus, such activity will be disregarded. However, if “borrow and return” activity involves swapping or loan of raw materials, it is considered as a supply of goods and subject to GST because the raw materials have been used and the replacement will not be the same raw materials (although of a similar or same kind of raw materials) that were being swapped. Thus, this type of activity is subject to GST at standard rate and GST is calculated based on the book (cost) value of the goods being borrowed.

5. What is GST treatment for assets or consumables written off and sold as scraps?

Assets or consumables which are written off are subject to GST at scrap value if they are sold as scraps. If they are destroyed in a manner approved by the GST office, they are not subject to GST.

However, assets or consumables which are relinquished to PETRONAS upon termination / expiration of a PSC term are not subject to GST.

6. What is GST treatment on rental of rig from a non resident lessor?

Importation of rig on a leasing arrangement is subject to GST at the point of importation. However, the rental charges payable for the rig during the duration of the lease are not subject to GST.

If the local recipient continues to lease the rig after the expiry of the lease, the rental charges payable are subject to GST at standard rate. He should then account for the GST using the reverse charged mechanism.

7. My company provides repair and maintenance services for Floating Storage and Offloading (FSO) or Floating Production Storage and Offloading (FPSO) in the high seas. Do such services attract any GST?

Yes. Repair and maintenance services for FSO and FPSO are subject to GST at standard rate. 

8. Is Floating Storage and Offloading (FSO) or Floating Production Storage and Offloading (FPSO) be regarded as part of petroleum upstream activity or shipping activities, and what is GST treatment on services provided by FSO and FPSO?

Both FSO and FPSO are regarded as part of petroleum upstream activity because they provide storage and offloading facilities for exporting crude oil and condensate overseas via offshore. However, FPSO provides additional facilities like water treatment or filterage on crude oil and condensate prior to export. While the export of crude oil subject to GST at zero rate and export duty, related activities (services provided by the FSO and FPSO) are subject to GST at standard rate. 

9. What is GST treatment on contributions / payments made to PETRONAS as requested in the PSC such as research cess payment and abandonment cess payment?

Contributions / payments made to PETRONAS such as research cess payment and abandonment cess payment are not subject to GST.

10. My company operates a block (oil field) in the east coast of Peninsular Malaysia. Some of the expenditures incurred include lease of barges and tuck boats provided by a transport company. Are those charges subject to GST and claimable as an input tax?

Yes. Lease charges are subject to GST at standard rate. However, they are claimable as an input tax credit (ITC). Please refer to the GST Guide on Shipping Industry for more information on the GST treatment of various types of charges.

11. What is the GST treatment on gas or fuel consumed during operations?

The consumption of gas or fuel during operation for purpose of business is not regarded as a supply and not subject to GST.

12. What is the GST treatment on renting of fishing tool which is used to collect fallen objects during drilling?

Renting of fishing tool is subject to GST at standard rate.

13. My company provides installation, coating and fabrication works for petroleum upstream operators. Are those services subject to GST?

Yes. Those services are subject to GST at standard rate. You need to charge GST on the services you provide and your clients (if GST registered person) can claim input tax credit on the GST they have paid in getting the services.

14. During a delivery of crude oil from a depot in Malacca to a refinery in Port Dickson, a substantial loss has been detected in the shipment. What is GST treatment on loss during delivery?   

Loss of crude oil during delivery is subject to GST. However, if the loss during delivery is due to theft or spillage which is supported by the relevant documents such as audited theft or spillage verification report, it is not subject to GST provided that a police report or an insurance claim report is made.

15. What is the treatment of GST on government grant given for funding approved Research & Development (R & D) which are directly related to the development and well being of the petroleum industry? 

All government grants are not subject to GST if there is no supply for the grants made.

16. Seismic study involves collecting data for identifying prospective wells in the high seas. Does the service performed trigger any GST?  

Yes. Seismic study is subject to GST at standard rate.

17. Company X would like to sell some of his assets to generate some fund for his drilling activities. What is GST treatment on the sale of assets?

Sale of assets is subject to GST at standard rate.

18. Does abandonment of a PSC block (whereby all assets including the platform belong to PETRONAS and will be relinquished to PETRONAS) subject to GST?

Relinquishment of assets to PETRONAS upon expiration of a PSC is not regarded as a supply for GST purposes. If assets under a PSC are written off during the life of a PSC and have no salvage value, then the write-off would not be subject to GST. If there is any scrap value received, then GST is chargeable on such value.

19. What is the GST treatment on leakage, oil spill and shrinkage? 

Leakage, oil spill and shrinkage are not a supply and as such, are not subject to GST. However, the leakage, oil spill and shrinkage should be supported by the audited leakage, oil spill and shrinkage verification report.

20. Can my company claim special sales tax refund on any capital goods like drilling equipment and machineries that we have acquired before the implementation of GST?  

No. Your company can not claim special sales tax refund on capital goods. Special sales tax refund is also not allowable on non trading stocks like raw materials, semi-processed goods, materials which are used indirectly in the manufacturing process (fuel, lubricating oil, detergents and chemicals) and consumables (stationeries).

21. Company Y, a GST registered person, has paid sales tax on his trading stock held on hand on the implementation date of GST. Can Company Y claim for special sales tax refund?

Yes. Since Company Y is a GST registered person and he has held the sales tax paid goods on GST implementation date, he is eligible to claim the special sales tax refund on condition that he has all the supporting documents such as invoice and customs declaration form available for claim.

However, after obtaining the special refund, if Company Y later returned the goods to the supplier, he must pay back the amount of that special refund to the Customs by accounting it as his output tax in his GST return.

22. What is GST treatment on non-reviewable contract that was signed before the implementation of GST?

For non-reviewable contract signed not less than 2 years before the GST implementation date, the supplies made on or after that date is subject to GST at zero rate for a period of 5 years after the GST implementation date provided that the

(a) supplier and the recipient are GST registered persons;

(b) supply is a taxable supply; and

(c) recipient of the supply is making wholly taxable supply.

However, for non-reviewable contract signed within 2 years before the GST implementation date, the supplies made on or after that date are subject to GST at standard rate. 
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