By SKM
April 10, 2025
ISLAMABAD: The country’s local refineries have so far braved a loss of Rs13billion in the first nine months of the current fiscal which is expected to increase up to Rs18 billion by June 30 mainly because of the sales tax exemption on POL products, shrinking margins and inventory losses.
This has been revealed in a letter to OGRA chairman, written on April 8, 2025 and signed by Managing Directors of five refineries —Pak-Arab Refinery Company (PARCO), National Refinery Limited (NRL), Pakistan Refinery Limited (PRL), Attock Refinery Limited (ARL) and Cnergyico PK Limited (CPL).
Refineries say in the letter that they have reached the verge of collapse also on account of shrinking margins and inventory losses as they have so far braved the losses of Rs13 billion in the first nine months of the current fiscal mainly because of the imposition of sales tax exemption on petrol, diesel, LDO and kerosene oil and their losses would increase to Rs18 billion by June 30, 2025.
In addition, according to the letter, refineries of which financial miseries have requested the government to shift the relief in POL prices to them expected in next fortnight starting from April 16, 2025 in the shape of an increase in IFEM (Internal Freight Equalization Margin) by Rs4.60 per liter each on petrol and diesel from April 16 onward till June 2025.
“The resolution of the sales tax exemption issue is imperative for the survival of the industry which is also critical to national security. Refineries, therefore, request that the benefit of the forthcoming price reduction be extended to the refineries to adjust their sales tax claims of approximately Rs18 billion through IFEM (Internal Freight Equalization Margin) over 2.5 months (equivalent to PKR 4.60 per liter on Petrol and Diesel each), providing the much-needed solace to the industry.
They pleaded their case asking the government’s top mandarins that while the freefall in petroleum product prices has posed a significant threat in the form of inventory losses, it also presents an opportunity as a substantial price reduction in petrol and diesel, expected in the forthcoming fortnight. “This reduction offers the government a chance to address critical issues, including the adjustment of unadjusted sales tax claims, which currently stand at Rs 13 billion for the past 9 months and are expected to reach Rs18 billion by the end of FY 2024-25,” says the letter.
“Apart from operational losses of Rs18 billion, under brownfield policy, refineries upgrade projects valuing $5-6 billion are at a halt just because of the budgetary measure of sales tax exemption—imposed in finance bill for 2024-25. The upgrade project has become unviable in the presence of the sales tax exemption.
“The new petroleum Minister, Ali Pervaiz Malik gave the time to refineries to resolve their problems, but the meeting could not take place. Now we are expecting the meeting with the minister would be held soon as he was hectically busy in the activities pertaining to the Pakistan Mineral Investment Forum (PMIF25),” one of the top refineries officials told this scribe.
Refineries also urged the government to permanently resolve sales tax issue in the forthcoming Federal Budget 2025-26 through requisite legislation in the Sales Tax Act, 1990, to make petroleum products taxable.
The letter also mentions that refining margins have been shrinking in the international market over the past nine months, resulting in lower profitability for local refineries. This, coupled with the ongoing sales tax issue, has further exacerbated the financial strain on the refineries.
“As of July 2024, the law has disallowed input sales tax claims, leading to a substantial increase in operational and capital costs for local refineries. This additional financial burden has placed considerable pressure on refineries, making it an increasing difficult for them to sustain operations. Further compounding these challenges, the recent freefall in crude oil/petroleum product prices, triggered by the U.S. reciprocal tariff regime, would lead to significant inventory losses, which would adversely impact refinery operations. This has placed the industry in an even more precarious financial position.” Ends
