The Petroleum Division has decided to take up the issue of general sales tax (GST) exemption for petroleum products with the International Monetary Fund (IMF) in a bid to pave the way for investments of $6 billion in upgrading oil refineries.
An IMF mission is already in Pakistan for programme review talks under its $7 billion Extended Fund Facility.
Sources said that Petroleum Minister Ali Pervaiz Malik had decided to discuss the matter with the IMF to address refineries' complaints about GST waiver, which reportedly caused a loss of Rs40 billion to the oil industry during the last financial year.
In a temporary relief, the government has allowed the industry to collect Rs1.87 per litre to cover its losses.
The petroleum minister wants to design a complete package to encourage refineries to start work on plant upgrade projects, but the GST holiday has so far discouraged the refineries and investors from making fresh investments.
Sources revealed that Chinese investors were also reluctant to pump capital into refineries due to inconsistent policies of the government.
The government had given assurance to refineries that it would impose up to 5% GST in the budget for fiscal year 2025-26, but it did not meet the commitment.
The Special Investment Facilitation Council has also given directives to finance and petroleum ministries to resolve the GST exemption issue. However, it has not been settled yet.
The oil industry has expressed dissatisfaction over efforts made by the government to overcome the problem. It is concerned about the absence of a solution, fearing it will jeopardise $6 billion worth of investment plans to produce environment-friendly fuels.
Industry lobby — the Oil Companies Advisory Council (OCAC) — has already warned that the continuation of sales tax break has threatened the viability of their businesses.
The industry argues the exemption is against broader objectives of the Pakistan Brownfield Oil Refining Policy 2023. The policy has become a shuttlecock and is only being implemented in bits and pieces, sparking concern among stakeholders.
"Foreign investors are not ready to pump money into plant upgrade projects of refineries," said OCAC.
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