ISLAMABAD: The working group of the Special Investment Facilitation Council (SIFC) is all set to figure out the options on Wednesday (tomorrow) to do away with major hindrance of sales tax exemption on petrol (MS), high-speed diesel (HSD), and light diesel oil (LDO), paving the way for $4-5 billion investment in upgradation of the local five refineries under amended brownfield refinery policy.
Secretaries of Finance Division, Planning Commission and Special Initiatives, FBR chairman, OGRA chairman, Pak-Arab Refinery Company (PARCO) managing directors, Pakistan Refinery Limited (PRL), National Refinery Limited (NRL), Attock Refinery Limited (NRL) and Cenergyico Pk Limited, and Co-coordinator (Petroleum), SIFC Division would put their heads together and thrash out doable options to neutralise the budgetary measure of sales tax exemption introduced in the finance bill and work out options to be presented before the apex committee of SIFC, headed by the prime minister. The chief of army staff is also a member of the apex committee.
Almost more than a week back, in the SIFC executive committee meeting, the issue was figured out wherein the FBR chairman promised to resolve it, stressing that he would come up with some options in the working group to undo the budgetary measure of sales tax exemption on petrol, diesel and light diesel oil.
In the SIFC meeting, to be held on Wednesday, FBR’s top mandarins, headed by its chairman, would come up with options on how to undo the sale tax exemption on MS, HSD, and LDO, and other participants would give their feedback on the options. After getting the input from all stakeholders, the SIFC working group will complete its spade work on options to be tabled before the apex committee.
“The FBR is reported to have options including restoration of zero-rated status on MS, HSD, and LDO or the imposition of sales tax. However, tax authorities may have more options,” said sources.
Exemption of sales tax on MS, HSD and LDO has not only made the project to upgrade local refineries economically unviable, significantly affecting project internal rates of return (IRRs), but will also virtually neutralise the incentive package of $1.6 billion the government will extend in 7 years.
This tax measure by the government in the Finance Act on Refineries has a significant impact that may render existing refining operations unsustainable, make projects and investments $5 billion investment in the upgrade projects of local 5 refineries in the doldrums.
According to top officials in the Energy Ministry, Pakistan has suffered an opportunity loss of $1-1.5 billion as of today because of failure in implementation of the amended brownfield refinery policy 2023 for upgradation of local refineries.
“Had it been implemented a year back, the additional production of petrol and diesel with Euro-5 specification would have saved $1-1.5 billion in the shape of reduction of the oil import bill,” senior officials said. “This is how the country has braved the loss of up to $1.5 billion to its economy which could have been turned into the savings to the economy.”
“The Shehbaz Sharif government has recently given extension of refineries’ upgradation policy implementation to accommodate PARCO and Cenergyico Pk Limited (CPL). The other three refineries — Attock Refinery Limited (ARL), Pakistan Refinery Limited (PRL) and National Refinery Limited (NRL), which were opposed to extension in implementation of the policy, have been allowed to sign. But the tax authorities played a foul as they did in the case of the petroleum dealers exposing them to double taxation. When the petroleum dealers threatened to go on a countrywide strike, the FBR, instead of admitting its fault, gave a clarification and resolved the issue.”
Adil Khattak, chairman Oil Companies Advisory Council (OCAC), appreciated the positive attitude of the relevant authorities who have assured their support in overcoming all hurdles in implementation of the brownfield refineries upgradation policy, which is considered a major achievement of the present government. He said that the federal budget for FY25 was announced, proposing withdrawal of the existing 10 per cent customs duty on diesel imports and the exemption of sales tax on petrol, HSD, kerosene, and light diesel oil. Previously, these products were zero-rated, allowing input sales tax on purchases and services to be claimed against their sales. The industry immediately informed the government and the FBR that reducing the duty to zero could lead to the closure of refineries, which currently supply over 60pc of the country’s petroleum products. The implementation of the sales tax exemption proposal would disallow input tax on services for the oil industry, increasing operating and projects cost.
Earlier, before the federal budget, three refineries, namely ARL, NRL and PRL, had agreed to sign upgradation agreements with OGRA, bringing an investment of US$3 billion and PARCO and Cnergyico Pk had sought more time for which 6-month extension was approved recently. Khattak lamented that at a time when the refineries were gearing up to take up their upgrade projects, the exemption of sales tax in the finance bill has dealt a serious blow to their upgrade plans and even normal operations.
“More than four-year delay in refineries policy formulation and approvals has already caused an estimated four-billion-dollar loss in terms of foreign exchange alone. This is in addition to the enormous opportunity loss to the refineries,” regretted the official.
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