Refineries Unhappy With Govt Exempting Imported Fuel From Sales Tax

Refineries are not happy with the government’s decision to exempt imported petroleum products from sales tax, a move that could badly hurt the industry and deprive it of a potential $4.5 billion investment planned for the next few years. Five leading refineries penned a letter to the Finance and Petroleum ministries last week where they said removing sales tax from MS petrol, high-speed diesel, kerosene, and light diesel oil will prevent local refiners from claiming 70 percent of their input sales tax. This change will impede the refineries’ ability to recoup taxes paid on taxable purchases and services, reported a national daily. Refineries noted that because the selling prices of these products are regulated, they cannot pass on the increased costs to customers. This will adversely affect them and make their operations unsustainable. The letter also pointed out that the government had recently announced the Pakistan Refining Policy for the Upgradation of Existing/Brownfield Refineries 2023, which offers various incentives for substantial investments in the sector. The refineries are currently undertaking upgrade and expansion projects worth $4.5 billion, expected to boost the economy through import substitution and job creation. However, the inability to claim input tax on project-related imports and purchases will increase costs and kill off these upgrades. The sector argued that the refining policy would become redundant and the sector would miss out on the gigantic $4.5 billion investment. They see the government’s decision as counterproductive which is negatively impacting refineries by straining cash flows and discouraging investment in upgrades and other expansion-related projects. The idea of first offering incentives and then quietly removing them doesn’t sit well with the sector. Refineries have urged the federal government to maintain the existing taxable status of petroleum products.