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Express Tribune
2 days ago
- Business
- Express Tribune
Oil industry slams govt for failing to fulfil promise
Listen to article The oil industry has expressed concern over the government's failure to fulfil the promise of resolving the issue of sales tax exemption on petroleum products in the Finance Bill 2025, which jeopardises $6 billion worth of planned investment in upgrading refineries. The industry has cautioned that the continuation of sales tax break in the budget for fiscal year 2025-26 threatens the viability of businesses, undermines investor confidence and is inconsistent with broader objectives of the Pakistan Brownfield Oil Refining Policy 2023. Earlier, foreign investors also voiced concern due to the sales tax exemption and were hesitant to invest in Pakistan's refineries. The government has allowed the oil industry to charge Rs1.87 per litre in order to recover the losses caused by the sales tax holiday. It also committed to resolving the issue by imposing up to 5% sales tax in the FY26 budget. However, it did not meet the commitment. Chairman of the Oil Companies Advisory Council (OCAC), in a letter sent to the Ministry of Energy – Petroleum Division on Wednesday, once again asked for the removal of sales tax exemption on petroleum products. "On behalf of the Oil Companies Advisory Council and its member companies, we wish to convey our deep concern and strong protest over the continuation of general sales tax (GST) exemption on petroleum products in the recently announced Finance Bill 2025," the OCAC chairman said, adding that while they acknowledge the government's interim relief by allowing the recovery of GST impact through the inland freight equalisation margin (IFEM), effective May 16, 2025, "this remains a temporary measure with inherent implications". "We urge the immediate withdrawal of the GST exemption and request its replacement with a sales tax mechanism that allows for full input tax adjustment. This is the only durable solution that will restore financial stability, tax neutrality and regulatory clarity to the sector, failing which, the investment of $6 billion in Pakistan's refining sector under the Brownfield Refining Policy is at serious risk," said the OCAC chairman. In view of the critical nature of the matter and its wide-ranging implications, he sought an urgent meeting with the petroleum minister to secure a path towards permanent resolution.
Express Tribune
16-04-2025
- Business
- Express Tribune
Govt turns down additional freight charges proposal
Listen to article The federal government has scrapped the proposal of collecting additional freight charges to ease financial pressure on the oil industry by raising the petroleum levy on oil products to fund canal and road projects in Balochistan. The petroleum levy has been recently increased on petrol by Rs16.66 per litre and on high-speed diesel by Rs15.65 per litre to collect funds for implementing road and canal projects worth Rs370 billion in Balochistan. Now, the total levy on petrol is Rs86.66 per litre and on diesel it is Rs85.65 per litre. Among other petroleum products, the levy stands at Rs80.17 per litre on high octane blending component, Rs18.95 per litre on kerosene oil, Rs15.37 per litre on light diesel oil and Rs60.17 per litre on E-10 gasoline. According to sources, oil refineries and marketing companies have estimated that they will suffer a Rs34 billion loss during the current financial year due to sales tax exemption. To reduce pressure, the Oil Companies Advisory Council (OCAC) – an industry lobby – has called for addressing the sales tax exemption issue. In its proposals to the Federal Board of Revenue, the OCAC pointed out that the Finance Act 2024 had introduced sales tax exemption on petrol, high-speed diesel, kerosene oil and light diesel oil. These fuels were previously zero-rated that allowed input tax claims. However, with the exemption, the input tax has started accumulating. Since prices of these petroleum products are regulated by the government, the denial of input tax has increased the industry's operating and infrastructure costs. Its impact for tax year 2025 is estimated at more than Rs34 billion. Sources said that the oil industry, in consultation with the Petroleum Division, had worked out a proposal, according to which Rs4 per litre would be adjusted in the inland freight equalisation margin (IFEM), which would be passed on to refineries to offset the loss caused by sales tax exemption. The Petroleum Division also prepared a summary for presentation to the prime minister and other relevant forums for approval. However, the government turned down the proposal of Rs4-per-litre adjustment in IFEM, prompting an outcry from the oil industry. The industry has also approached the government for abolishing the super tax and other levies. It underlined the need for addressing the sales tax exemption matter in the federal budget for 2025-26 to help the sector operate smoothly. OCAC proposed that petroleum products should be again placed under the taxable regime to ease the burden. It argued that global and domestic economic pressures had already strained formal businesses. The super tax, originally a one-off levy, has continued to remain in place, which threatens the viability of documented companies. OCAC called for its removal in 2025-26. The industry body also objected to the minimum tax levied under Section 113 of the Income Tax Ordinance, citing that prices and margins for petroleum products were fixed by the government. These margins encompass establishment, development and operating costs, yet the current minimum tax consumes roughly 16% of the fixed margin of oil marketing companies. It recommended reducing the minimum tax applicable to refineries and OMCs to 0.25%.
Express Tribune
05-04-2025
- Business
- Express Tribune
Oil industry fears Rs32b loss this fiscal year
Listen to article Refinery upgrade projects worth $6 billion may face a setback, as the oil industry is expected to incur a loss of Rs32 billion during the ongoing financial year due to sales tax exemptions. The Finance Act 2024 changed the sales tax status of petroleum products – including petrol, high-speed diesel, kerosene oil and light diesel oil – from zero-rated to exempt supplies, which in turn disallowed input sales tax claims, significantly increasing operational and capital costs for local refineries. Sources said that the oil industry estimated that refineries were going to suffer a loss of Rs18 billion in the current financial year whereas oil marketing companies would sustain a loss of over Rs14 billion. The Oil Companies Advisory Council (OCAC) took up the matter with former petroleum minister Musadik Malik and the finance minister but it could not be resolved. Now, according to sources, the oil industry is hoping that new Petroleum Minister Ali Pervez Malik will address the issue, but he has not yet been able to spare time for the industry. Industry players were of the view that the government was not interested in settling the matter in the current financial year. They noted that the government could look into the tax issue in the upcoming budget, however, by then, oil refineries may have suffered a loss of Rs32 billion, making them unable to kick off work on plant upgrades. Sources revealed that foreign investors, who had earlier been keen to work in collaboration with refineries, were concerned over the situation and lost their interest in the projects. Refineries have planned investments of up to $6 billion to ramp up production and meet 100% oil demand within the country. At present, refineries meet 30% of the country's petrol requirement. With plant modernisation, this coverage is anticipated to double over the next six years, reaching 60% of petrol consumption. Similarly, for diesel supply, refineries account for 50% of the country's requirement. In the next six years, it is projected they will be able to double their capacity, resulting in domestic production catering to 100% of diesel demand without the need for imports. Industry experts concede that while demand for diesel may rise 10% to 20% over the next six years, the nation's self-reliance is poised to avert the requirement for import. Officials estimate that through bolstering petrol and diesel production, Pakistan will save approximately $600 million in foreign exchange annually, which will translate into a substantial benefit of $1.2 billion for the economy in just two years. Sources pointed out that refineries had been given a six-month extension for signing supplemental agreements with the Oil and Gas Regulatory Authority (Ogra) in order to start upgrading their plants. However, the situation has worsened and they may not be able to sign these agreements due to the reluctance of investors to pump capital into projects under the new refinery policy. Oil industry officials said that the amendment regarding sales tax exemptions impacted the financial viability of planned plant upgrades, infrastructure development and daily operations. They warned that it would result in deterioration of earnings of the oil industry, especially refineries, forcing them to delay modernisation projects.
