Oil Industry Rejects Budgetary Measures, Calls for Continuation of Existing Tax Regime


ISLAMABAD: The oil industry has strongly opposed the proposed federal budget for 2024-25, claiming it undermines the recently announced policies for establishing new refineries and upgrading existing ones. The Oil Companies Advisory Council (OCAC) has urged the government to maintain the current taxation regime, including customs duties on diesel and sales tax laws on all petroleum products.

In a representation to the federal ministers for finance and petroleum, the OCAC, an independent organization of refineries, oil marketing companies, and a pipeline company, expressed concerns over the budgetary measures. The council highlighted that the withdrawal of the existing 10% customs duty on high-speed diesel (HSD) imports contradicts the “Pakistan Oil Refining Policy for New/Greenfield Refineries 2023” and the “Pakistan Oil Refining Policy for Upgradation of Existing/Brownfield Refineries 2023,” both designed to attract foreign investment.

These policies allow a 7.5% customs duty on HSD for 25 years for greenfield projects and a 10% duty for brownfield projects for six years. The OCAC warned that reducing the duty to zero could lead to the closure of refineries, which currently supply over 60% of the country’s petroleum products, and called for rectifying this issue before the budget’s approval.

The OCAC also pointed out that the Finance Bill 2024 proposes exempting sales tax on petrol, HSD, kerosene, and light diesel oil, which were previously zero-rated. The implementation of this proposal would disallow input tax on services for the oil industry, increasing their operating costs. The OCAC demanded that petroleum products be brought into the taxability regime.

Additionally, the OCAC raised concerns about proposed changes in the finance bill that would withdraw tax commissioners’ powers to issue exemption certificates, which have been in place since the early 1990s. The council argued that these changes would impose significant withholding tax liabilities on refineries without corresponding income, creating financial strain and operational challenges.

The OCAC also criticized a new budgetary measure allowing commissioners to reject advance tax estimates in the absence of relevant information from taxpayers. This could lead to unfavorable tax positions and cash flow issues for companies, necessitating cumbersome refund processes.

The OCAC urged the government to reconsider these proposals to avoid negatively impacting the oil industry and ensure its continued operation.

Story by Khaleeq Kiani

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