SIFC for resolving POL sales tax exemption issue

ISLAMABAD: The Special Investment Facilitation Council (SIFC) has asked the Petroleum Division (PD) to ensure the resolution of Sales Tax (ST) exemption issue on petroleum products (POL) in collaboration with the Finance Division and FBR affecting the viability of Brownfield Refineries Upgradation by 10th November 2024.

Top functionaries of the Petroleum Division have also been directed to present a comprehensive plan for the elimination of illegal petroleum outlets (in collaboration with Ogra, provincial authorities, and industry stakeholders) and check sale of substandard fuel by 7th November 2024.

This has been unfolded in the minutes of the SIFC’s Working Group held on October 22, 2024, on the downstream issues of the policy. As per the minutes, the Oil Companies Advisory Council (OCAC), provided a concise briefing on the critical challenges faced by refineries, emphasizing the sales tax issue, rampant smuggling of petroleum products, and the uncontrolled import of HSD.

OCAC underscored the adverse impact of these issues on refinery operations and profitability, noting that resolution is pivotal to the signing of the Brownfield Refinery Policy 2023. The unresolved matters are resulting in a significant annual foreign exchange loss of $1 billion to the state.

The budgetary measure imposed in the Finance Bill for FY25 has hampered the initiation of $6 billion investment for upgrade projects. These projects are yet to be kick-started by local refineries. So, SIFC meeting asked Petroleum Division’s top officials, after consultation with relevant officials of the Finance Ministry and FBR, to resolve the issue of Sales Tax exemption by November 10, so that upgrade projects of refineries, valued $6 billion, could be started.

OCAC in the SIFC meeting argued that the Sales Tax exemption on petrol, diesel, kerosene oil and light diesel oil (LDO) has been effectively disallowed, claiming 80-85pc of input tax, which makes the existing refining operations unsustainable and upgradation projects unviable.

Once upgradation takes place in 7 years’ time, the country would have petrol and diesel with Euro-V specifications, and production of Furnace Oil would be reduced to the minimum level. In the meeting, the Ministry of Energy (Petroleum Division), informed the participants that a comprehensive summary addressing the sales tax issue is being processed for necessary approvals.

Oil and Gas Regulatory Authority (Ogra) outlined ongoing efforts to combat the smuggling of petroleum products through a coordinated approach involving law enforcement agencies, district administrations and Ogra. The Ogra chairman highlighted that additional engineers have been hired to bolster the capacity of inspection teams tasked with identifying and shutting down illegal retail centers involved in the sale of smuggled petroleum products.

SIFC urged the Petroleum Division to expedite the resolution of the sales tax issue and to enhance Ogra’s capacity in leading the campaign against smuggling. This campaign will involve collaboration between the Petroleum Division, Ogra, SIFC, and provincial and local administrations.

The SIFC meeting decided that the Ogra is responsible for curbing substandard and below-specification fuels from the market. Ogra chairman will certify in writing that all SOPs and regulatory guidelines related to the import and utilization of refinery stocks of petroleum products are being strictly adhered to in both letter and spirit.

And more importantly under the SIFC decision, FBR has been asked to present a plan with timelines for resolution of tax refund issues related with OMCs (oil marketing companies) by 7th November 2024.