Govt mulls 20% windfall gain tax
The government is considering proposals either seeking imposition of a windfall gain tax to take a pie out of the estimated Rs130 billion profit being earned by oil sector companies during war time or a mechanism to pay back to consumers after recovering the money from these entities.
Prime Minister Shehbaz Sharif has constituted a committee, which in addition to finding a solution to the freezing of salaries of foreign-qualified university professors has been mandated to look for a way to recover an estimated Rs72 billion from oil marketing companies (OMCs).
Any decision to impose the windfall gain tax on both oil refineries and marketing companies can be implemented through a Statutory Regulatory Order (SRO) without the need for amending the Income Tax Ordinance in budget, say government sources. The other option is to recover the money from OMCs and transfer it to consumers through oil prices.
However, the Petroleum Division is not in favour of any move to recover the windfall gains, at least until the war ends and global prices return to pre-war levels, said the officials. The division is also of the view that companies should be compensated for losses incurred on inventories. Sources said that in case the government decided to impose a 20% windfall gain tax, it would be enforced in the next fiscal year once accounts for the current tax year were finalised. The total estimated gains by oil refineries and marketing companies are close to Rs130 billion, according to tax authorities.
The government increased prices of diesel and petrol by Rs55 per litre soon after the war began, which gave a bonanza to the oil sector companies. The PM last week constituted the committee, tasked with undertaking a comprehensive review of the important budget matters and prepare firm recommendations. Finance Minister Muhammad Aurangzeb has been made convener of the committee.
One of the mandates of the committee is to "review the financing mechanism for cross-subsidy currently being funded by the Petroleum Division, including the possibility of clawing back the windfall gains of Rs72 billion from oil marketing companies".
The committee on Monday held its first meeting but it did not discuss the recovery in detail. A senior government official said that it had already been decided that the recovery of any amount of windfall gains from OMCs and refineries would be settled once the crisis was over and inventory losses would also be taken into account.
PM Sharif has already constituted a Dar-led committee to "review, analyse and present tax policy proposals", formulated by the Tax Policy Office of the Finance Division. The committee was directed to ascertain and evaluate the financial and operational requirements of key economic ministries and divisions including the Ministry of Commerce, Power Division, Privatisation Division and Ministry of Information Technology, said a notification.
The committee was also mandated to review the performance of economic ministries and recommend allocations for the Public Sector Development Programme (PSDP) 2026-27 on the basis of priorities determined through their performance, strategic importance and alignment with national development objectives.
However, the committee observed that it was not the appropriate forum to discuss the development budget allocations and the work should be done by the Annual Plan Coordination Committee, headed by the planning minister.
The committee will also conduct a detailed analysis of the litigation pending in international courts, pertaining to the Power Division and associated financial requirements, and propose a way forward by prioritising expenditure on cases with strong prospects of success.
According to an important mandate, the Aurangzeb committee has been tasked to suggest a legal mechanism whereby revenue generating divisions can retain part of their proceeds to meet their development and current expenditures. The Revenue Division is looking for a share in the FBR's tax collection.
The committee has also been asked to review the allocation of funds from the Climate Support Levy to facilitate startups through the Ministry of Climate Change's Green Initiative Programme. The government is charging a levy of Rs2.5 per litre on diesel and petrol, which it is going to double from July as part of the IMF's conditions.
The PM has told the committee to review and rationalise the salary structure of foreign-qualified professors and researchers, who had been denied any increase since 2021. These highly qualified researchers and professors, hired under the Tenure Track System (TTS), received the last pay raise in 2021 and since then they have faced at least three major increases in inflation, including the record pace of 38%.
According to a briefing given to the finance ministry and the Senate Standing Committee on Finance, prices rose 87% and the tax burden jumped 81% for the TTS category but they got no increase in salaries. While the finance minister has been tasked to resolve the issues of other ministries, his own ministry has failed to meet a legal obligation of publishing the annual Budget Strategy Paper.
Senate Finance Committee Chairman Syed Naveed Qamar expressed concern over the delay in circulation of the Budget Strategy Paper. On Monday, he observed that the Ministry of Finance was legally bound under the Public Finance Management Act, 2019 to circulate the document in a timely manner to ensure meaningful parliamentary scrutiny ahead of the budget session.