By SKM
March05, 2025
ISLAMABAD: The country’s refineries have communicated to the top financial manager of the government that the sales tax exemption on petrol, high speed diesel (HSD), kerosene oil and light diesel oil (LDO) — a measure introduced in the Finance bill FY 2024 has caused a substantial hike to their operational and capital costs.
More importantly, their upgrade projects valuing $5-6 billion are at a halt just because of the budgetary measure of sales tax exemption. This has been told by local refineries in their joint letter to the Federal Minister for Finance and Revenue Senator Muhammad Aurangzeb. The copy of the letter is also available with the Exclusivewaves.com.pk.
In the joint letter written on March 4, 2025, the refineries agitated that the Finance Act 2024 changed the sales tax status of petroleum products (Petrol, High Speed Diesel, Kerosene Oil and Light Diesel Oil) from zero-rated to exempt supplies, which has led to the disallowance of input sales tax claims, causing a substantial increase in operational and capital costs of the local refineries.
“The said change in sales tax law is severely impacting the financial viability of our planned upgrade projects, infrastructure development, and day-to-day operations. The continuation of this exemption will result in significant erosion in profitability and severe financial strain on the Oil Refining Industry.”
“This issue has jeopardized the progress and sustainability of crucial capital-intensive projects thus nullifying the objectives of the Brownfield Refining Upgradation Policy which was approved by the government in August 2023.”
The letter also mentioned saying that despite continuous follow-ups over the past seven months and active coordination with the Ministry of Energy – Petroleum Division (MEPD), Oil and Gas Regulatory Authority (OGRA), Federal Board of Revenue (FBR), the issue remains unresolved. This matter is critical for the survival of the Oil Refining Industry in Pakistan, and its prolonged delay is causing significant challenges.
Refineries sought an urgent intervention to facilitate an amicable & swift resolution and request an urgent meeting with your esteemed self to discuss and resolve this critical issue.
When contacted OCAC chairman Mr Adil Khattak who is also Managing Director of Attock Refinery Limited told The News that sales tax exemption on POL production from July 1, 2024 has inflicted a massive loss to the existing operations of the refineries and caused a halt in $5-6 billion upgrade projects under brownfield refinery policy.
He mentioned that consultation on Refineries Upgradation Policy was initiated in December, 2019, first draft was finalized in March 2021 and presented to Cabinet Committee on Energy (CCOE) in August, 2021. It took another two years till its approval by the PDM government in August, 2023.
After intense and prolonged consultation between the government, refineries, independent financial and legal advisory firms, the Policy for Upgradation of Brownfield Refineries was amended in February, 2024. The Policy, if implemented, will bring in US$5-6 billion investment to enable the Oil Refineries to undertake major upgradation projects to not only comply with Euro – V specifications but also increase production of deficit products of petrol and diesel by 100 % and 50 % respectively and also reduce production of furnace oil by 80 %, which because of drastically reduced demand in recent years often results in storage constraints forcing the refineries to reduce capacity utilization.
Unfortunately, implementation of the Policy remains stalled till this day due to one reason or another the latest hurdle being the exemption of petroleum products from sales tax in the Finance Act 2024 which deprived the refineries from claiming most of the sales tax paid at the input stage making not only their Upgradation projects unviable but also their current operations unsustainable. Numerous meetings have been held at the Petroleum Division, OGRA and FBR over the past six months but the issue remains unresolved. Even directives and deadlines given by the PM office and SIFC went unheeded.
Adil Khattak, lamented that the inordinate delay in formulation, approval and now implementation of the Refineries Upgradation Policy has caused an estimated five billion dollars loss in terms of foreign exchange alone. This is in addition to the enormous opportunity loss to the refineries.
“In contrast India followed up its 2025 Vision for Energy Sector and today not only has the largest and most modern refining complexes but also exports petroleum products to countries with the most stringent environmental standards. It also enabled India to make the best out of the cheap Russian crude oil available,” Mr Adil reckoned. Ends
