FBR extends tax incentive for E&P sector

KARACHI: The Federal Board of Revenue (FBR) on Wednesday extended the scope of a tax incentive to cover all exploration and production firms regardless of their ownership structure.

The FBR allowed exploration and production companies to adjust input tax against output sales tax, through a statutory regulatory order (SRO 352(I)/2020).

“Registered petroleum an exploration and production company has been allowed to deduct amount of input tax from the output tax subject to the conditions, limitations or restrictions that in case a bore-hole or well or gas field is run by a joint venture, the person acting as operator of the field may transfer the share of common input tax from the output tax to other registered persons in the joint venture by issuing a credit transfer note,” FBR said.

However, the issuance of credit note will depend on respective share of the transferees in the joint venture, showing the amount of sales tax involved with zero sales value and “the same shall be admissible for the purpose of input tax adjustment by the registered person to whom such credit transfer note is issued”.

“The common input tax of the operator shall be reduced by the amount involved in such notes as issued by the operator,” FBR added.

Sources in Large Taxpayers Unit Karachi said the input adjustment is already available to petroleum companies. However, joint ventures, especially of foreign interest, are facing difficulties in sharing the sales tax input adjustment, they said.

The sources said the FBR, through the latest SRO, facilitates all the exploration and production companies in ease of doing business and reducing their cost of production.

The sources said the tax authorities recently rejected huge amount of input adjustment claims by a leading foreign exploration firm. The tax authority also recovered the adjusted amount from the company.

The sources said the changes would facilitate the foreign companies and help attracting foreign investment into the energy sector.

Pakistan’s gas production is four billion cubic feet per day, which can meet 75 percent of the local demand. Crude oil production is 95,000 barrels per day, enough only to meet 15 percent of the country’s demand.

The country has a total sedimentary of 827,000 square kilometres. Total area under exploration is 361,000 square kilometres and around 1,100 exploratory wells have so far been drilled in the country. Despite low density of wells, the country’s oil and gas discoveries success is one out of 3.2 wells.