ISLAMABAD: Pakistan’s oil refineries have informed government officials that their lenders will not provide loans for plant upgrades unless issues, including the sales tax exemption on petrol (MS), High-Speed Diesel (HSD), and light diesel oil (LDO), are resolved.
Managing directors from Pak-Arab Refinery Company, Pakistan Refinery Limited, National Refinery Limited, Attock Refinery Limited, and Cenergyico Pk Limited conveyed this during a meeting of the Working Group of the Special Investment Facilitation Council (SIFC), according to a senior official present at the meeting. High-ranking officials from the Federal Board of Revenue (FBR), Finance Ministry, Planning Commission, SIFC coordinator, and Petroleum Division also attended the meeting.
The FBR chairman admitted that imposing a sales tax exemption in the Finance Bill 2024-2025 was a mistake and acknowledged that refineries should have been consulted. The refineries countered that the Oil Companies Advisory Council (OCAC) had previously written to the FBR, highlighting that the tax exemption would hinder the planned $4-5 billion investment under the amended brownfield refinery policy.
Refinery representatives argued that the sales tax exemption on MS, HSD, and LDO has rendered refinery upgrade projects economically unviable, negatively impacting the internal rates of return (IRRs) and nullifying the government’s $1.6 billion incentive package over seven years. This measure also jeopardizes the sustainability of existing refining operations and puts new projects and the $5 billion investment at risk.
The meeting noted that oil marketing companies (OMCs) would also suffer due to potential sales tax refund issues. Consequently, refineries and OMCs will prepare a joint presentation on the impact of the sales tax exemption on the $5 billion investment in upgrade projects and the operations of existing refineries and OMCs. This presentation will be submitted to the SIFC apex committee for a final decision.
Options for addressing the issue include reversing the sales tax exemption through parliamentary action, restoring the zero-rated regime for the affected petroleum products, or imposing a sales tax on these products. The SIFC apex committee, attended by the Chief of Army Staff, will review these options in its next meeting.
Refineries have proposed an immediate imposition of a 3% to 5% sales tax on the products. While the FBR found this challenging at the current stage, they agreed to review the proposal. Any amendment to the Finance Act would require consultation with the IMF, as quoted by FBR officials.
Story by Khalid Mustafa
