Refineries urge NA Committee to resolve sales tax exemption issue

ARACHI: Local refineries have sought the intervention of the National Assembly’s Standing Committee on Finance & Revenue to address the issue of sales tax exemption on petroleum products under the Finance Act 2024.

In a joint letter to the committee’s chairman, five refineries -- Pakistan Refinery Limited, National Refinery Limited, Pak-Arab Refinery Limited, Attock Refinery Limited and Cnergyico Pakistan Limited -- said that the refining sector in Pakistan is facing a significant challenge following changes introduced in the Finance Act 2024. The act reclassified petroleum products -- including petrol, high-speed diesel, kerosene oil and light diesel oil -- from ‘zero-rated’ to ‘exempt supplies’. This change has led to the disallowance of input sales tax claims, substantially increasing both operational and capital costs for local refineries. Previously, these products were categorised as ‘taxable supplies’ with ‘zero-rated sales tax’, ensuring no impact on consumer prices.

The refineries warned that the change in tax status is severely affecting daily operations and threatening the financial viability of planned upgrade projects. They further noted that continuing this exemption would impose a financial strain of Rs18 billion on the oil refining sector, jeopardising capital-intensive upgradation projects worth $5.5 billion. These projects were planned under the Brownfield Refining Upgradation Policy, approved by the government in August 2023. The refineries argued that the ongoing tax issue is undermining the policy’s objectives.

Despite persistent follow-ups over the past eight months at various forums and active coordination with the Ministry of Energy’s Petroleum Division (MEPD), the Oil and Gas Regulatory Authority (Ogra), and the Federal Board of Revenue (FBR), the issue remains unresolved, the letter added.

The refineries emphasised that resolving this matter is critical for the survival of Pakistan’s oil refining industry, warning that prolonged delays are creating significant operational and financial challenges.