Sales tax exemption halts upgrade projects, refineries warn govt

ISLAMABAD: Amid the ongoing visit of IMF mission, Pakistan’s refineries have informed the federal government that the sales tax exemption on petroleum products—introduced in the Finance Bill FY 2024—has significantly increased their operational and capital costs. More critically, this measure has brought $5-6 billion worth of upgradation of projects to a halt. In a joint letter to Federal Minister for Finance and Revenue Senator Muhammad Aurangzeb, dated March 4, 2025, the refineries highlighted that the Finance Act 2024 changed the sales tax status of petroleum products (petrol, high-speed diesel, kerosene oil, and light diesel oil) from zero-rated to exempt supplies. This change has disallowed input sales tax claims, leading to a substantial rise in operational and capital costs.

The letter stated, “The said change in sales tax law is severely impacting the financial viability of our planned upgrade projects, infrastructure development, and day-to-day operations. The continuation of this exemption will result in significant erosion in profitability and severe financial strain on the Oil Refining Industry.”

The refineries emphasized that this issue has jeopardised the progress and sustainability of crucial capital-intensive projects, nullifying the objectives of the Brownfield Refining Upgradation Policy approved by the government in August 2023.

Despite continuous follow-ups over the past seven months and active coordination with the Ministry of Energy (Petroleum Division), the Oil and Gas Regulatory Authority (Ogra), and the Federal Board of Revenue (FBR), the issue remains unresolved. The refineries described the matter as critical for the survival of the oil refining industry in Pakistan and requested an urgent meeting with the finance minister to discuss and resolve the issue.

When contacted, Adil Khattak, Chairman of the Oil Companies Advisory Council (OCAC) and Managing Director of Attock Refinery Limited, told The News that the sales tax exemption on petroleum products, effective July 1, 2024, has inflicted massive losses on refineries’ existing operations and halted $5-6 billion upgrade projects under the Brownfield Refinery Policy.