Thursday September 29, 2022

Local refineries allowed 10-year income tax holiday

By Bureau report
June 23, 2021

ISLAMABAD: Finance Minister Shaukat Tarin has agreed to extend the 10-year Income Tax holiday to the existing refineries which was earlier denied in the proposed finance bill 2021-22.

The Finance bill 2021-22 proposes tax holiday to be applicable on upgrades to deep conversion refinery’s project of at least 100,000 barrels per day (bpd) capacity, excluding all of the existing refineries. Now Tarin has agreed to include a 10 year IT holiday for the existing refineries in the finance bill. The decision was taken in a meeting held here on Tuesday with Finance Minister Shaukat Tarin in the chair. The meeting accommodated suggestions of refineries in the finance bill and removed those measures detrimental to the refineries, one of the CEOs of a refinery told The News.“ Tarin also approved the 20-year IT holiday for new refineries.” However, the finance minister refused to erase the 17 percent GST on crude oil saying that IMF wants imposition of GST The refineries argued saying that 17% GST proposed on crude in the budget would not yield any additional revenue as it is adjustable. However, it will create significant working capital issues for the already financially stressed industry. The proposed GST will create an additional working capital requirement of approximately Rs10 billion "increasing financial charges and erode the profitability of refineries." Furthermore, this will reduce cash generation required for upgrades.” Tarin according to the CEO said the government "will find a way out that refineries do not suffer from cash availability problems.

Tarin also approved 10 percent custom duties on both MS and HSD as already proposed in Finance Bill 2021-22. However, the finance minister told the representatives of refineries that Federal Excise Duty (FED) on crude oil will remain at 2.5 percent for financial year 2021-22 but from the next fiscal it will be zero. The refineries agreed with the Finance Minister on this issue. Refineries were of the view that the 2.5 percent duty on crude oil will increase the cost of production and negatively impact refineries’ profitability. And more importantly this will significantly reduce the cash generation for up-gradation projects unless the cost is allowed to be passed on to the consumer.