Karachi, July 12, 2024 – The Oil Companies Advisory Council (OCAC) has thrown a wrench into the government’s recent tax plan, urging the removal of the sales tax exemption on petroleum products.
This exemption, introduced through the Finance Act, 2024, aimed to provide some relief to consumers, but the OCAC argues it creates significant challenges for the oil industry.
In a letter to the Ministry of Energy, the OCAC highlights the potential pitfalls of this policy. While the previous system involved a “zero-rated” tax structure, allowing oil companies to claim input taxes paid on services and equipment, the new exemption eliminates this benefit.
Input Tax Blues
The OCAC warns that this exemption will lead to a “significant increase in operational cost.” Since oil companies can no longer claim input taxes, the effective cost of everyday operations, upgrades, and infrastructure development will rise. This could ultimately impact the viability of these capital-intensive projects and even hinder the sustainability of existing operations.
Policy Contradiction
The OCAC further argues that the sales tax exemption contradicts recent government policies aimed at attracting investment in the oil sector. The “Pakistan Oil Refinery Policy for New / Greenfield Refineries 2023” and the “Pakistan Oil Refining Policy for Upgradation of Existing / Brownfield 2023” both aimed to incentivize investment in new refineries and upgrades to existing ones. The OCAC suggests the current tax exemption undermines these efforts.
Sustainability at Stake
The OCAC concludes its letter by emphasizing the importance of a sustainable and well-developed oil industry for ensuring uninterrupted fuel supplies in the country. They reiterate their demand for the removal of the sales tax exemption and a return to the previous tax structure, which they believe will be more beneficial for the industry’s long-term health.
The government now faces the challenge of weighing the potential benefits of the sales tax exemption for consumers against the concerns raised by the OCAC. Finding a solution that balances both sides will be crucial for ensuring a stable and sustainable fuel supply in Pakistan.