By SKM
July 2, 2025
ISLAMABAD: After the failure of the government to resolve the issue of sales tax exemption issue with the IMF, the Special Investment Facilitation Council (SIFC) has directed the authorities concerned to revise the brownfield refinery policy 2023 by September 31, 2025 with more incentives to ensure the initiation of $6 billion upgrade projects of local refineries.
This has been disclosed in the minutes of the Executive Committee of SIFC held on June 18, 2028. As per the minutes released on July 1, 2025, Secretary Petroleum will formally convey final non-extendable timelines for the resolution of the Sales tax exemption issue to concerned stakeholders and SIFC.
In case of non-resolution, revision of Brownfield Refinery Policy 2023 will be undertaken, while considering fiscal incentives for refineries to proceed with upgradation. The revision of the brownfield refinery policy will be completed within 3 months’ time (September 31, 2025).
The SIFC forum also endorsed the agreement reached between SSGC and JJVL for making JJVL LPG-NGL extraction plant which was non-operational since June 2020. The JJVL plant will now be made operational by July 31, 2025 under the agreement which says that a separate rate shall be applicable for JJVL in respect of internal consumption as specified in Article 4.1.3, which shall be equivalent to Weighted Average Cost of Gas (WACOG), based on Oil & Gas Regulatory Authority (OGRA) Determination of Revenue Requirement of SSGC.
Coming to the upgradation of local refineries issue, the officials who were part of the SIFC meeting said that in the SIFC meeting it was told that the IMF earlier refused to accommodate the proposals the government pitched before the Fund for the $6 billion upgrade projects of local refineries. This upset the top mandarins of the Petroleum Division as the IMF refusal has put the potential mega-investment of $6 billion in the refining sector on halt.
“In the Finance Bill for FY26, the government financial managers as per their promises could not resolve the issue of sales tax exemption on POL products — a measure introduced in the Finance Bill for FY25 that has made the upgrade projects extremely unviable.”
When asked about the nature of the government proposals, that the IMF refused to accept, the official said one was seeking restoration of zero-rated status of POL products and the second was about imposition of a 10 percent sales tax to make upgrade projects viable. The IMF disallowed the restoration of zero rate status. However, on the proposal of imposition of the 10 percent sales tax, the Fund argued that FBR functionaries didn’t have the required capacity to this effect as the inability of the tax collecting agency has already been observed in the massive under-invoicing of the import of solar panels in the country. So the IMF refused to accept both proposals urging the government to come up with new proposals for upgrade projects.
on May 20, 2025, the Managing Directors and CEO (Chief Executive Officers) of the country’s leading refineries in a meeting with the Petroleum minister and then with the Finance Minister stressed the solution of sales tax exemption imposed on POL products once for all in the upcoming budget for FY26 ensuring no change in tax policy for 7 years so that refineries could initiate investment of $6 billion on their upgrade projects to ensure petrol, diesel at par with the specification of Euro-V. In June 2024, in the finance bill, the FBR officials imposed the sales tax exemption on POL products, but refineries while importing crude oil pay sales tax and sales tax adjustments are not possible in the presence of this measure in the finance bill for FY25.
The exemption of sales tax on POL products has not only made the project to upgrade local refineries economically unviable, significantly affecting project internal rates of return (IRRs), but will also virtually neutralize the incentive package of $1.6 billion the government will extend in 7 years.
However, with the endeavors of the petroleum minister Mr Ali Parvaiz Malik, ECC approved the increase in IFEM (Inland Freight Equalization Margin) by Rs1.87 per liter for the next 12 months to cope with the Rs34 billion losses refineries and oil marketing companies (OMCs) will brave till June 30, 2025 on account of sales tax exemption. However, this is a temporary arrangement. Refineries wanted this issue must be resolved for 7 years so that $6 billion investment could be materialized in the shape of up-gradation of local refineries. End
