PSO seeks tax zero-rating to prevent refund buildup
PSO reiterated that they were already carrying high HSD stocks and were not in a position to take additional quantities beyond the usual allocation for October. photo: file
As state-owned Pakistan State Oil (PSO) is in hot water due to the Federal Board of Revenue's (FBR) refusal to release refunds, it has urged the government to switch over to zero-rating of jet fuel and petroleum products to tackle the accumulation of sales tax refunds.
The FBR has to pay Rs54 billion sales tax refunds accumulated in financial year 2024-25, which has left PSO struggling and forced it to seek government intervention.
PSO management says blocking of sales tax refunds has choked its cash flow and it has not been able to maintain liquidity to run smooth fuel supply operations across the country.
In a letter sent to the Petroleum Division, the PSO leadership has drawn its attention to the delay in release of tax refunds, which has adversely affected the company's liquidity position. "A significant amount of sales tax refund is pending with the Federal Board of Revenue," the management said, adding that at present, the outstanding refunds stand at Rs54 billion.
Despite repeated follow-ups, PSO said tax refunds had not been released, thereby impacting the company's working capital and ability to meet operational requirements.
It pointed out that PSO's net outstanding sales tax receivables had increased significantly, putting pressure on cash flow and affecting fuel supply operations. "The delayed refunds have also led to increased reliance on short-term borrowings, adding to financing costs."
It recalled that in an earlier correspondence, PSO had sought support for early settlement of tax refunds. Now, the company is once again requesting the ministry's intervention for zero-rating of jet fuel and petroleum products to reduce the accumulation of tax refunds, ensure immediate release of pending claims to ease liquidity constraints and get policy support to prevent future buildup of refund claims.
The company management stressed that they were confident that timely resolution of the matter would help PSO maintain uninterrupted energy supply and financial stability.
PSO also imports liquefied natural gas (LNG) from Qatar based on a government-to-government (G2G) contract. It is facing pressure due to the power sector's refusal to receive committed LNG supplies. To avoid glut, it has recently struck a deal with a Qatari company for diverting 24 LNG cargoes during 2026.
Circular debt is another ghost haunting the company for decades. As of March 2025, PSO's total receivables stood at Rs732 billion, which included Rs325 billion in principal amount due to be paid by Sui Northern Gas Pipelines Limited (SNGPL) alone. Overall late payment surcharge is estimated at Rs200 billion.
The oil marketing company mentioned that since February 2024, there had been no circular debt buildup from the SNGPL side as the gas utility had told the government and PSO that payments should flow on a monthly basis. This understanding has remained in place and is being implemented in true spirit.
Recently, the government has increased margins on petroleum products, which would have a healthy impact on the financial health of PSO. The oil marketing giant has widened its retail network by opening 67 new sites as storage capacity has expanded. The expansion strategy for retail outlets will continue over the next few years.