OCAC urges removal of sales tax exemption

KARACHI: The Oil Companies Advisory Council (OCAC) has called for the removal of sales tax exemption on motor spirit (petrol), high speed diesel oil, kerosene, and light diesel oil, emphasizing the move as crucial for the sustainability and development of the oil industry.

The OCAC highlighted the necessity to ensure uninterrupted supplies of petroleum products across the country.In a letter addressed to the Secretary Energy (Petroleum Division) on Thursday, the OCAC pointed out that these products were previously zero-rated, allowing for the claim of input sales tax on services and capital expenditure against their sales. However, under the Finance Bill 2024, these products have been exempted from sales tax, resulting in the disallowance of proportionate input tax.

The council expressed concerns over the implications of this change, noting that it would significantly increase operational costs and impact the feasibility of upgrade projects for refineries and infrastructure development by oil marketing companies. The OCAC underscored that these changes could hamper the progress and sustainability of both ongoing and future capital-intensive projects.

Additionally, the OCAC highlighted that the exemption contradicts the objectives outlined in the Pakistan Oil Refining Policy for New/Greenfield Refineries 2023 and the Pakistan Oil Refining Policy for Upgradation of Existing/Brownfield 2023. These policies aim to attract foreign investment for new refineries and the enhancement of existing ones, thereby supporting the country’s oil refining capacity and efficiency.The move by the OCAC underscores the industry’s concerns regarding the impact of tax policies on long-term investments and operational viability within the petroleum sector.