Oil Marketing Association Wants A Reduction in Turnover Tax

The Oil Marketing Association Pakistan (OMAP), which is a representative body of the Oil Marketing Companies (OMCs), called on the government again on Friday to remove the anomaly in the levying of the turnover tax applicable to the oil marketing sector by linking it to the margins earned by the OMCs and reducing its rate to 0.25 percent.

The Chief Executive Officer of OMAP, Dr. Ilyas Fazil, informed the Minister for Finance, Shaukat Tarin, in a letter that the “rate of turnover tax (currently at 0.75 percent) should be rationalized/aligned to remove all elements of discrimination and be reduced to 0.25 percent in order to provide much-needed relief to cash flows and profits”.

He added, “Minimum Tax should, moreover, be linked to the gross margins for OMCs rather than the revenues as OMCs have a very thin government-regulated margin”.

OMAP had sent representatives to the Ministry of Finance on the issue before the announcement of the federal budget as well.

The CEO of OMAP contended that only fixed margin is the turnover/revenue of the OMCs, and hence, should form the basis of charging the minimum tax u/s 113 of the Income Tax Ordinance, 2001.

He emphasized that in the case of the OMCs, the components of the selling price of Petrol and High Speed Diesel (HSD) are regulated by the Oil & Gas Authority (OGRA) and other authorities.

OMAP pointed out that although the profit margin of petroleum dealers, agents, and distributors is higher than that of the OMCs, the petroleum dealers operating petrol pumps are exempt (Clause 11A – Part IV – Second Schedule) and the petroleum agents are enjoying a low rate of 0.25 percent as compared to the 0.75 percent charged to the OMCs.

Dr. Fazil stressed that “this is discriminatory, arbitrary and absurd as in the similar sector, the persons with high-profit margin pay no/lesser percentage of tax on turnover while the OMCs having fewer profit margins suffer higher rates”.

He argued that the rate of 0.75 percent had been fixed for the OMCs without taking into account the average profit to turnover ratio in the relevant sector, which is lower than many other industries for which the turnover tax rate has been fixed at 0.25 percent.

While referring to the 0.25 percent minimum tax levied on the rice mills and the distributors of the pharmaceutical industries (the prices of whose products are controlled by the government), OMAP said that it also deserves similar treatment for being a highly regulated sector.

Dr. Fazil emphasized that the dealers, sub-dealers, retailers, and wholesalers of fast-moving consumer goods, sugar, cement, and edible oil have been allowed a discounted rate of 0.25 percent under Clause (24D) of Part II of the Second Schedule to the IncomeTax Ordinance, 2001. Petroleum Products also fall under the same FBR definition of fast-moving products (‘our storages and retail outlets are replenished on an hourly basis’) and therefore, the OMCs should be treated in a similar manner.

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