OCAC seeks 0.25pc cut in minimum tax on OMCs, refineries

KARACHI: Pakistan’s oil sector has sought reduction in minimum tax to 0.25 percent on refineries and oil marketing companies (OMCs) from 0.50 percent as expected rise in prices of petroleum products would diminish margins.

Based on the current geo political situation, prices of petroleum products are expected to remain stable in the near future; however, due to the current economic challenges being faced by the country, further devaluation of rupee is expected. Accordingly, petroleum prices are expected to rise and the impact of minimum tax will further diminish OMC margins, Oil Companies Advisory Council (OCAC) stated in a letter written to the Federal Board of Revenue (FBR) chairman.

Drawing attention towards the levy of minimum tax under section 113 of the Income Tax Ordinance, 2001 (the Ordinance) on gross receipts in respect of OCAC’s member companies engaged in the business of refining, oil marketing and distribution of petroleum products, the oil body said minimum tax (0.50 percent) is applicable on gross turnover of both refineries and OMCs under section 113 of the Ordinance.

It stated that prices of Petroleum Products (high speed diesel and motor spirit - petrol) and the margins thereon are fixed by the government and cannot be changed unless approval of the relevant ministries of the government is obtained. It said that margins of OMCs have been revised recently to Rs6 per liter for both products.

However, OMCs purchase the petroleum products from local refineries and also import the same for further distribution through petrol pumps and to industrial and commercial users. The selling price of petroleum products is determined by OGRA whilst the margin per liter to be retained by the companies as fixed by government is included in the sale price of the POL products. The OMC’s margin has no nexus with the level of price. Whilst OMCs prepare their audited financial statements in accordance with the requirements of the International Accounting Standards and the Companies Act, 2017 on the basis of the gross value of POL products purchased/sold, the actual margin of the OMC from sale of POL products is the fixed margin as allowed by government. The said fixed margin covers all costs related to establishment, development and set-up of the business and running of the business including capital cost and financial costs.

OCAC said that due to significant increase in prices of petroleum products during the current year, the current minimum tax is effectively higher than the previous year, despite reduction from 0.75 percent to 0.50 percent effective July 2022.

Seeking amendments in the ordinance, OCAC demanded that rate of minimum tax of 0.50 percent applicable on refineries and OMCs under section 113 of the Ordinance, be reduced to 0.25 percent; and the amount received by OMCs by way of fixed margin should be taken as their actual turnover for the computation of minimum tax liability under section 113 of the Ordinance.