Refineries seek recovery of input sales tax via IFEM

KARACHI: The country’s five refineries have requested permission to recover unclaimable input sales tax, resulting from the sales tax exemption on petroleum products, through the Inland Freight Equalisation Margin (IFEM).

In a joint letter to the director-general (DG) oil at the Petroleum Division, the refineries highlighted their repeated submissions for resolving the sales tax exemption issue. The matter, raised at various levels with Ogra, DG Oil, the Ministry of Energy (MoEPD), the Ministry of Finance (MoF), and the Federal Board of Revenue (FBR) since July 2024, remains unresolved.

During a meeting with the FBR on January 3, the refineries were informed that amendments to the Sales Tax Act, 1990 would likely be introduced through an act of parliament. These amendments are expected to be included in next year’s annual budget after consultations with relevant stakeholders, according to the letter.

The refineries also noted that the Special Investment Facilitation Council (SIFC) had directed all the authorities concerned to resolve the issue. “We understand that a meeting is scheduled this week to review the status,” the letter said.

Given the urgency of the matter, the refineries unanimously proposed a temporary measure to address their immediate operational and financial challenges. They requested permission to recover the unclaimable input sales tax, applicable since July 2024, from the IFEM.

The refineries also urged the Petroleum Division to initiate the necessary approval process. They clarified that this temporary measure addresses only current operational losses due to the sales tax exemption and does not resolve the increased cost of refinery upgrade projects, which requires a comprehensive solution.