By SKM
April 14, 2025
ISLAMABAD: The government is making mind to accommodate refineries which have faced Rs13 billion losses in the first 9 months of the current fiscal mainly because of sales tax exemption, inventory losses and shrinking margins either by shifting some relief of Rs4.60 per liter in IFEM (Inland Freight equalization Margins) or imposing 3-5 percent sales tax on POL products.
“Under one proposal, apart from April 16, this month, the government may shift some of the relief of Rs8-10 per liter in POL products to refineries by increasing IFEM to cope with the losses they braved,” a senior official at Petroleum Division told Exclusivewaves.com.pk.
The second proposal which is under consideration is to impose sales tax of 3-5 percent on POL products, but under this proposal, the losses refineries have braved so far would not be coped with as sales tax cannot be imposed retrospectively from July 1, 2024. More importantly, for the imposition of sales tax, the government also requires to enforce the ordinance for the sales tax imposition.
“The IMF has no objection but it wants to impose 18 percent sales tax on POL products which will cause an increase of POL produce by Rs45 per liter. The Fund says the 3-5 percent sales tax is allowed on essential items not items like petroleum products. Like electricity, sales tax should be imposed on petroleum products by 18 percent.”
Only two days are left in starting next fortnight, so the government has two days with it for making decision on shifting some relief to refineries. ”We are expecting the government is most likely to move ECC today (Monday) or tomorrow (Tuesday) for the decision in favour of refineries,” industrial sources said. They said that two days are remaining till April 16, and in two days, the relief in POL prices may surge by RS9-10 for diesel and petrol respectively.
Earlier on April 8, 2025, in a letter to OGRA chairman and DG oil, refineries informed that they have reached the verge of collapse on account of sales tax exemption on petrol, diesel, kerosene oil and light diesel oil (LDO), 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.
Refineries in their letter had suggested 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.
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 the finance bill for 2024-25. The upgrade project has become unviable in the presence of the sales tax exemption. 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. Ends
