Refineries seek Rs23b in tax refunds

Ask energy ministry to intervene as refunds remain stuck with FBR

ISLAMABAD:

Cash-strapped oil refineries have sought the Petroleum Division’s help for the release of Rs23 billion worth of refunds stuck with the Federal Board of Revenue (FBR).

In a letter to Ministry of Energy (Petroleum Division) Secretary Ali Raza Bhutta, the Oil Companies Advisory Council (OCAC) underlined that refineries were already facing problems in securing funds, as banks were reluctant to provide financing.

It recalled that banks had declared oil companies as risk entities and were not ready to provide credit for imports and maintaining smooth supplies amid higher oil prices.

“We would like to bring to your kind attention that huge funds of refineries are stuck in the unadjusted input sales tax, which has resulted in severe cash flow constraints on the refineries,” the letter said.

Earlier, 17% sales tax was imposed on crude oil with effect from July 1, 2021, which was supposed to be adjusted against the sales tax on finished products, it said.

Read: Refineries demand more financing

Later, the sales tax on the main finished products (ie high-speed diesel and motor spirit) was “significantly reduced from time to time even to 0%”, it added.

Resultantly, the refineries were unable to recover the sales tax paid at the input stage against the sales tax on output, thus creating a huge unadjusted input sales tax.

Although the sales tax on crude oil was withdrawn from January 15, 2022, the refineries were still carrying the unadjusted sales tax, which could not be recovered, the letter said.

The unadjusted input sales tax of the refineries stood at Rs23.25 billion as of February 28, 2022.

Giving details, the letter said that Attock Refinery Limited was to receive Rs3.4 billion, Cnergyico Pk Limited Rs2.75 billion, National Refinery Limited Rs3.9 billion, Pakistan Refinery Limited Rs2.35 billion and Pak-Arab Refinery Limited Rs10.85 billion.

“Higher international oil prices are exerting additional pressure on the refineries’ working capital needs,” the oil industry body said.

In that regard, “we request you to kindly take up the matter of unadjusted input sales tax with FBR, which is essential for refineries under the current high oil price scenario in the international market”, it added.

Due to higher crude oil prices in the global market, the oil import bill of Pakistan will go up.

In addition, Prime Minister Imran Khan has announced a freeze on oil prices at current levels till the upcoming budget amid political turmoil in the country.

The Pakistan Tehreek-e-Insaf (PTI) government is incurring a heavy cost of maintaining petroleum prices, to win the support of masses amid a no-trust motion against the PM.

The government will receive another blow in terms of less revenue collection on account of petroleum levy.

It has collected only Rs116 billion in petroleum levy so far against the budgetary target of over Rs600 billion for the ongoing financial year.

Moreover, Pakistan is again facing the threat of fuel shortage due to the Russia-Ukraine war.

According to reports, the oil reserves were depleting fast in different countries including the United States.

The threat of more sanctions against Russia has triggered panic in the global oil market, as prices continued to surge, which would eat up the foreign exchange reserves of oil importing countries.

Pakistan is one of those countries that rely on oil imports.

The government has already availed bailout packages from Saudi Arabia and the International Monetary Fund (IMF).

If such a trend in the global oil market continues, Pakistan will face the threat of depletion of foreign exchange reserves due to a higher import bill.

Published in The Express Tribune, March 25^th, 2022.

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