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September 2, 2018

Consumers paid Rs500 bn in deemed duty for substandard POL products


September 2, 2018

ISLAMABAD: Some Rs500 billion has so far been extracted from the consumers of petroleum products on the pretext of collecting deemed duty, but they have been repaid only with products whose standards do not match those being sold in other countries, the Senate standing committee on petroleum learnt yesterday.

The government imposed deemed duty on petroleum products in 2003 for just three years to help pay for the up-gradation of refineries, but the arrangement remains in place. Consumers continue to pay deemed duty of 7.5 percent on diesel fuel, generating Rs37-40 billion a year in revenue for the refineries, the committee was told.

This alarming disclosure was been made during the meeting of the Senate Committee on Petroleum Division held here on Friday.

Its chairman, Senator Mohsin Aziz, described the longstanding imposition of the duty as an injustice to consumers.

He said the public has been forced to subsidise to refineries, which are still unable to stand on their own feet.

Shahid Sattar, an ex-Member Energy of the Planning Commission, told the Senate committee that successive governments had granted two-year extensions to the deemed duty imposed on petroleum products in 2003.

Tariq Akbar, a former general manager of the Pakistan State Oil, said that former prime minister Shaukat Aziz had ordered the phased withdrawal of the deemed duty, but it is still being received from the consumers and, in return, they are being sold substandard petroleum products.

He noted that all the refineries had been ensured a lucrative rate of return on capital investment, but still received the Rs37 billion a year charged as deemed duty. He said that the refineries in Pakistan are very old.

The most modern, Pak-Arab Refinery Co (Parco), was erected in 2002 with a paid up capital of Rs9 billion and granted a 25 percent rate of return on investment for eight years. Parco recovered its investment in four years.

He said Pakistan Refinery Ltd was built in 1962, National Refinery Lt in 1961 and Attock Refinery Ltd in 1958, and have long since recovered their initial investments many times over.

Yet they still receive the deemed duty payments.

Mohammad Azam, Director General Oil at the Petroleum Division, responded by saying that some of the refineries have upgraded their operations by setting up isomerisation plants for better refinement of crude oil.

The deemed duty was paid as compensation for the upgrades, he said.

Azam said that the amount collected under the heading of petroleum levy goes to the exchequer and has nothing to do with the Petroleum Division.

About Rs178 billion was collected in the financial year 2017-18, Rs167 billion in 2016-17, and Rs60 billion in 2010-11.

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