Provinces seek 10-year tax exemption for PHCs in budget

ISLAMABAD: All four provinces have sought a 10-year tax exemption on their Provincial Holding Oil and Gas Companies (PHCs) in the forthcoming budget for the fiscal year 2018/19, and also demanded to impose federal excise duty (FED) on indigenous crude oil and transfer its revenue to the provinces as their constitutional right.

Khyber Pakhtunkhwa government has written a letter to the federal government in this regard seeking this exemption in Finance Bill 2018/19 for its nascent PHCs which were incorporated in pursuant to the federal government’s Petroleum Policy 2012.

Besides KP, other provinces have also sought the same for their PHCs, as these can boost the economy through fast tracked exploration and production of oil and gas reserves. If PHCs were properly supported and strengthened, they could play pivotal role in ensuring economic stability and energy security.

They said the provincial governments were gathering every available penny to strengthen their PHCs and the federal government should also exempt the PHCs of all the four provinces from income tax for a period of ten years.

The exemption in-fact should be viewed as a prudent investment of the government which would result in much greater tax revenue to the government after 10 years.

Exemptions have been given to promote specific sectors including the private sector, the provinces said, citing various previous examples such as clause 101 that allows 24 year tax exemption to venture capital companies; clause 126A to 126AD – 23 year tax exemption to a number of Chinese companies and even to their contractors and sub-contractors working at Gwadar Port; clause 126B – 20 years tax exemption to Khalifa Coastal refinery; clause 126C – 10 years tax exemption to all industrial undertakings in Larkana industrial estate; clause 126D – 10 years tax holiday to all industrial undertakings in Gwadar; clause 126E – 10 years tax exemption to all industrial undertakings in special economic zones (SEZs).

Besides, some have been given lifetime exemptions. These include clause 132, lifetime tax exemption to power sector companies and clause 132B – lifetime exemption to coal mining project in Sindh supplying coal to power projects. Under, clause 141 – five-year exemption has been given to the LNG terminal operators and terminal owners.

It is worth mentioning that since the passage of the 18th Constitutional Amendment in April 2010, provinces have been asking the central government to levy FED on the indigenous crude oil and transfer the revenue to the provinces, but so far it has not been imposed. This is the provinces’ constitutional right so FED must be imposed in Finance Bill 2018 to keep up the sanctity of Article 161(1)(b) of the Constitution of Pakistan.

The article states, “The net proceeds of the federal duty of excise on oil levied at well-head and collected by the federal government, shall not form part of the federal consolidated fund and shall be paid to the province in which the well-head of oil is situated.” In April 2017, the KP provincial assembly declared denial of due right of the provinces as sheer violation and disregard to the Constitution.

For Finance Bill 2017 last year, joint resolution was passed to urge Oil and Gas Regulatory Authority (OGRA) to include the said duty in the petroleum price fixing formula requiring the federal government to immediately implement the clause of the constitution while following all other legal formalities.