The Oil & Gas Regulatory Authority (Ogra) has recommended a significant reduction in deemed duty on high-speed diesel (HSD), urging that the current rate of 7.5% be cut to 5% for refineries that have not committed to upgrade agreements as outlined in the Pakistan Oil Refinery Policy.
This recommendation, outlined in a letter to the Petroleum Division, also suggests that the differential deemed duty above 5% on HSD, along with the 10% duty on petrol, should be diverted to the Inland Freight Equalization Margin (IFEM) pool.
Ogra’s proposal targets four key refineries—Attock Refinery Limited, National Refinery Limited, Pak Arab Refinery Limited, and Cnergyico—which have yet to sign the requisite upgrade agreements. According to Ogra, these refineries’ reluctance to proceed with the upgrades directly jeopardizes their deemed duty benefits. The regulator has requested an update from the Petroleum Division on the current status of these refineries and their progress toward compliance.
The delay stems from objections raised by the refineries over a newly introduced sales tax exemption on petroleum products, which was incorporated in the Finance Bill for the current fiscal year. Although the deadline to sign the agreements expired on October 22, 2024, an extension is anticipated, pending discussions by the Cabinet Committee on Energy in its upcoming meeting.
During a recent briefing, Attock Refinery’s management expressed concerns about the Finance Act of 2024, which amended the Sales Tax Act of 1990, to include a tax exemption on petroleum products. The refinery’s executives argued that this exemption could diminish incentives and escalate operational costs, primarily due to the lack of input tax adjustments against output taxes. Consequently, Attock and other refineries have postponed signing the agreement while negotiations with the government are ongoing.
Industry insiders suggest that Ogra’s recommended reduction in deemed duty serves as a clear warning to non-compliant refineries, signaling that any further delay may result in lost benefits. Despite recommendations from the Special Investment Facilitation Council (SIFC) urging swift resolution, the sales tax exemption remains a complex policy decision for the government. Upgrading these refineries is projected to require an investment of $4–5 billion, intended to enhance the refining sector’s competitiveness.
Once the refineries sign the upgrade agreements, they will be granted a six-year tariff protection of 10% on motor gasoline and diesel’s ex-refinery price, starting from the notification date. However, 2.5% of the deemed duty on diesel and the 10% deemed duty on motor gasoline (as incremental incentive) will be deposited by the refineries into a joint escrow account managed by Ogra and the respective refinery at the National Bank of Pakistan (NBP). These funds will be exclusively allocated for upgrade projects, with deposits to IFEM until the escrow account’s activation.
