Oil industry slams govt for failing to fulfil promise

Says despite commitment, sales tax exemption on petroleum products not withdrawn

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ISLAMABAD:

The oil industry has expressed concern over the government's failure to fulfil the promise of resolving the issue of sales tax exemption on petroleum products in the Finance Bill 2025, which jeopardises $6 billion worth of planned investment in upgrading refineries.

The industry has cautioned that the continuation of sales tax break in the budget for fiscal year 2025-26 threatens the viability of businesses, undermines investor confidence and is inconsistent with broader objectives of the Pakistan Brownfield Oil Refining Policy 2023.

Earlier, foreign investors also voiced concern due to the sales tax exemption and were hesitant to invest in Pakistan's refineries.

The government has allowed the oil industry to charge Rs1.87 per litre in order to recover the losses caused by the sales tax holiday. It also committed to resolving the issue by imposing up to 5% sales tax in the FY26 budget. However, it did not meet the commitment.

Chairman of the Oil Companies Advisory Council (OCAC), in a letter sent to the Ministry of Energy – Petroleum Division on Wednesday, once again asked for the removal of sales tax exemption on petroleum products.

"On behalf of the Oil Companies Advisory Council and its member companies, we wish to convey our deep concern and strong protest over the continuation of general sales tax (GST) exemption on petroleum products in the recently announced Finance Bill 2025," the OCAC chairman said, adding that while they acknowledge the government's interim relief by allowing the recovery of GST impact through the inland freight equalisation margin (IFEM), effective May 16, 2025, "this remains a temporary measure with inherent implications".

"We urge the immediate withdrawal of the GST exemption and request its replacement with a sales tax mechanism that allows for full input tax adjustment. This is the only durable solution that will restore financial stability, tax neutrality and regulatory clarity to the sector, failing which, the investment of $6 billion in Pakistan's refining sector under the Brownfield Refining Policy is at serious risk," said the OCAC chairman.

In view of the critical nature of the matter and its wide-ranging implications, he sought an urgent meeting with the petroleum minister to secure a path towards permanent resolution.