KARACHI: The refining sector has reached out to the Special Investment Facilitation Council (SIFC) seeking intervention to mitigate the adverse impacts of recent amendments in sales tax, envisaging exemptions for petroleum products from the levy of sales tax, The News learnt on Monday.
Sources within the oil sector disclosed that refineries have engaged with high-ranking officials and are scheduled for meetings in the coming days to safeguard their operations and future investments in upgradation agreements.
They emphasized that refineries are contemplating abstaining from signing the upgradation agreements unless the government reconsiders its decision to exempt petroleum products from sales tax, as outlined in the current fiscal year's finance bill.
The deadline for signing these agreements has been recently extended, allowing refineries flexibility in timing. However, sources noted that given the current taxation measures, refineries cannot proceed with these agreements without risking substantial investment losses, estimated at $4-5 billion should all refineries opt for upgrades.
Last week, in a joint letter to the government, the country’s five refineries expressed concern that the inability to reclaim significant portions of input sales tax on taxable purchases and services would severely impact their financial viability.
With regulated selling prices for most products, refineries would be unable to pass on increased costs to consumers, adding that the cumulative effect of these tax proposals would render refinery operations unsustainable.
The recent introduction of the Pakistan Refining Policy for Upgradation of Existing/Brownfield Refineries 2023 aims to incentivize significant investments in the sector within specified timelines. Refineries are currently undertaking upgrade and expansion projects totalling $4.5 billion, which are expected to contribute substantially to the economy through import substitution and employment generation.
However, concerns were raised that the inability to claim input tax credits on project-related imports and purchases under current tax policies would escalate project costs, rendering them economically unfeasible, as stated in the joint letter.
Sources close to the matter indicated that approaching the SIFC is viewed as a final recourse to secure the future of refineries and their planned investments, pending the signing of agreements with the Oil & Gas Regulatory Authority (Ogra).
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