Govt exempts OMCs from up to 3% VAT

Relief only on petroleum products under govt regulation.

ISLAMABAD: The federal government exempted oil marketing companies (OMCs) from the payment of up to 3 per cent value added tax (VAT) on the import of certain petroleum products on Monday – a move that stakeholders believe will ease cash flow problems in the industry. The exemption has been granted on jet fuel, light diesel oil and kerosene oil, said an official of the FBR.

According to a statutory regulatory order issued by the Federal Board of Revenue, the order will be effective ex post facto from 11th of June 2008, and all companies that have paid the VAT since then will be refunded with their paid amounts. Through the notification, the government has effectively amended the sales tax special procedures rules of 2007.

According to the notification, petroleum products imported by an oil marketing company for sale in the country, whose prices are regulated under a special pricing arrangement by the government or by a regulatory authority, will not be charged the VAT anymore. Furthermore, petroleum products imported by a manufacturer for in-house consumption will also be exempt from the VAT.

However, commercial importers will still pay the tax, and the notification clarified that the relief is only for those products which are under government regulation.

An official of Pakistan State Oil said that since 2008, the FBR has been charging two to three per cent VAT at the import stage on some products; over and above the normal sales tax charged at 16 per cent. He said the industry had pleaded that the levy of the VAT was unjustifiable and that its profits had been shrinking due to the practice.

The official said that the government had partially accepted the demands of the OMCs, and agreed to refund the charged amount. He said the decision will ease cash flow problems as the levy was resulting in withheld money and a marginal net effect.

Published in The Express Tribune, February 21^st, 2012.