SIFC to address challenges faced by refineries

Calls meeting on Sept 18 to discuss sales tax break that has caused losses of billions

ISLAMABAD:

The Special Investment Facilitation Council (SIFC) has called an urgent meeting to swiftly address the challenges being faced by the oil industry, which has halted work on $6 billion worth of refinery upgrade projects.

The refineries and oil marketing companies (OMCs) have been facing losses for months due to sales tax exemption. It caused Rs34 billion loss to them in the last financial year – 2024-25.

Though the government later came up with a mechanism to recover the loss, the sales tax exemption issue remained unresolved.

Now, the SIFC apex committee has called an urgent meeting on September 18 to consider the challenges being encountered by the oil industry. Sources told The Express Tribune that a sitting, to be held under the chairmanship of SIFC apex committee secretary, would discuss the tax holiday.

Under a relief mechanism, the government had agreed to impose 5% general sales tax (GST) in the Finance Bill 2025 to pave the way for smooth work on refinery upgrade projects. However, the government failed to fulfill its commitment.

The industry has voiced concern over the absence of a solution to the sales tax exemption on petroleum products in the Finance Bill, which has jeopardised $6 billion worth of investment plans to upgrade refineries for producing environment-friendly fuels.

The Oil Companies Advisory Council (OCAC) – an industry lobby – has already warned the government that the continuation of sales tax break in the budget for FY26 threatens the viability of their businesses. It has undermined the confidence of investors, who may hesitate to provide financing for the planned projects.

Industry players say it is not consistent with broader objectives of the Pakistan Brownfield Oil Refining Policy 2023. Foreign investors have also expressed serious concern due to the sales tax exemption, holding back their investments.

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 live up to its commitment.

OCAC chairman, in a letter sent to the Ministry of Energy (Petroleum Division), called for removing the sales tax exemption while conveying his deep concern and strong protest over the continuation of GST holiday in the Finance Bill.

While the industry acknowledges the government's interim relief through the recovery of GST impact in the form of inland freight equalisation margin (IFEM), effective from May 16, 2025, "this remains a temporary measure with inherent implications," he said.

The OCAC chairman underlined the need for immediate withdrawal of the GST exemption and 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," he said.