- The Ministry of Energy is examining measures to overcome political obstacles.
- Sales tax exemption conflicts jeopardize refinery modernization plans.
- SIFC sets January 7 as deadline to finalize refinery deals.
KARACHI: The country’s refining sector has suggested several measures to the government to facilitate progress on refinery upgrade deals under the brownfield refining policy, estimating a maximum consumer impact of Rs2 per liter , News reported.
In the latest round of proposals to resolve disputes over the sales tax exemption on petroleum products – which has blocked the signing of refining deals – the industry has estimated that the total impact on consumers will be would rise to around Rs 2.05 per liter over six months if refineries are allowed to recover their costs retrospectively from July 2024, when sales tax on petroleum products was exempted in the draft of finance law for the current financial year (FY25).
If refineries are allowed to recover costs prospectively, the total impact on consumers has been calculated at Rs 1 per litre. However, refineries are unwilling to recover their costs prospectively and insist on recovering them retrospectively, sources close to the deliberations revealed.
Refineries made their contribution when the Power Ministry sought their suggestions ahead of a meeting with the Federal Board of Revenue (FBR), scheduled for Friday (today).
The sector has proposed restoring the status of petrol, fast diesel (HSD), light diesel (LDO) and kerosene as zero-rated taxable supplies, retrospectively from July 2024. It has also suggested d Exempt sales tax on project-related supplies and services.
The industry has proposed prospectively imposing a sales tax of up to 2% on gasoline and diesel, as well as a semi-annual adjustment of the Domestic Freight Equalization Margin (IFEM) to meet demand for sales tax related to operations and projects in the early years.
The impact of the price increase, he noted, could be neutralized by an equivalent reduction in the petroleum tax (PL).
Regarding the potential reduction in government revenue if PL was reduced to compensate for the increase in IFEM/GST, the industry estimates that this would be equivalent to input sales tax demands to be adjusted by refineries, amounting to 2 .05 Rs per liter.
Efforts to resolve issues hampering refinery upgrade deals – an initiative involving $4-5 billion in investment – were accelerated after the Special Investment Facilitation Council (SIFC) ordered the removal of obstacles and set January 7 as the deadline for refineries to sign. the agreements.
In last month’s SIFC meeting, it was highlighted that exemption from sales tax on petroleum products (petrol, kerosene, diesel and LDO) in Budget 2024-25 made modernization and refining operations apparently unviable, impacting the overall project costs by $763. million, jeopardizing routine refinery operations and making them unsustainable.