Oil industry seeks urgent govt intervention

OCAC highlights tax exemption, margin revision issues threatening sector sustainability

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ISLAMABAD:

The Oil Companies Advisory Council (OCAC) has raised serious concerns over delays in resolving the removal of the sales tax exemption on petroleum products and the revision of margins for Oil Marketing Companies (OMCs).

OCAC, an independent body representing refineries, OMCs, and a pipeline company, advocates for the downstream oil industry's interests before government and non-government forums to ensure its sustainability.

In a letter to Prime Minister Shehbaz Sharif, OCAC Chairman Adil Khattak highlighted two pressing challenges faced by the industry.

The first issue pertains to the removal of the sales tax exemption on petroleum products, which has created severe financial strain for oil refineries. The Finance Act 2024 reclassified petroleum products from zero-rated to exempt supplies, making input sales tax claims ineligible and significantly increasing operational and capital costs.

OCAC stated that this change undermines the financial viability of planned upgrade projects and infrastructure development, jeopardising capital-intensive initiatives vital for ensuring an uninterrupted petroleum supply nationwide. The organisation warned that continuing this exemption would erode profitability and disrupt the progress envisioned under the Brownfield Refining Upgradation Policy approved in August 2023. Despite seven months of follow-ups with the Ministry of Energy, Oil and Gas Regulatory Authority (OGRA), Federal Board of Revenue (FBR), Ministry of Finance, and the Special Investment Facilitation Council (SIFC), the issue remains unresolved.

"This matter is critical for the industry's survival in Pakistan. Its prolonged delay is causing significant challenges. We respectfully seek your urgent intervention for an amicable and swift resolution," the letter read.

OCAC also highlighted delays in revising OMC margins, which were due in September 2024. In June, OCAC recommended increases to account for financing costs for maintaining a 20-day stock cover, turnover tax, handling losses, demurrage, and operational expenses.

The council stressed that an immediate revision is essential to prevent further financial losses and sought the prime minister's support in resolving these issues. It also requested a meeting to discuss these concerns and ensure the sustainability of Pakistan's downstream oil industry.