Karachi, January 24, 2025 – The Oil Companies Advisory Council (OCAC) has called for the removal of sales tax exemptions and the restoration of the zero-rated regime for petroleum products to address the growing challenges faced by Pakistan’s oil industry.
In a letter addressed to Prime Minister Shehbaz Sharif, the OCAC outlined critical issues affecting the downstream oil sector. As an independent body representing refineries, Oil Marketing Companies (OMCs), and a pipeline company, the OCAC’s primary mission is to safeguard the viability and sustainability of the industry by advocating for policies that support its members.
The letter highlighted two major challenges confronting the sector:
Removal of Sales Tax Exemption on Petroleum Products
The Finance Act 2024 altered the sales tax status of petroleum products from zero-rated to exempt supplies. This change has rendered input sales tax claims ineligible, significantly raising operational and capital costs for the industry. The OCAC stressed that this policy shift is undermining the financial feasibility of planned upgrade projects, infrastructure development, and daily operations.
According to the OCAC, the continued application of this exemption threatens to erode profitability, placing severe financial strain on the industry. The organization warned that this jeopardizes crucial capital-intensive projects necessary for ensuring the uninterrupted nationwide supply of petroleum products. Such setbacks, they noted, contradict the objectives of the Brownfield Refining Upgradation Policy, approved under the government’s leadership in August 2023.
Despite months of engagement with the Ministry of Energy’s Petroleum Division (MEPD), the Oil and Gas Regulatory Authority (OGRA), the Federal Board of Revenue (FBR), the Ministry of Finance (MoF), and the Special Investment Facilitation Council (SIFC), the issue remains unresolved. The OCAC urged the prime minister to intervene and expedite an amicable resolution.
Revision of OMC Margins
The OCAC also emphasized the need to revise OMC margins, which have been pending since September 2024. In June 2024, the council proposed an increase based on critical cost factors such as financing costs for maintaining a 20-day stock cover, turnover taxes, handling losses, demurrage charges, unadjusted sales tax financing costs, and operational expenses.
The organization argued that an immediate revision of OMC margins is essential to prevent further financial losses and ensure the industry’s sustainability. The OCAC appealed for the prime minister’s support in addressing this pressing issue.
The OCAC’s proposals underscore the urgent need for government action to safeguard Pakistan’s downstream oil industry and secure its long-term viability.