Oil and gas exploration: UK asks Pakistan to resolve income tax issue

Delay in doing so may hurt foreign investment into the country: diplomat.

ISLAMABAD:

The United Kingdom (UK) on Monday urged Pakistan to resolve the longstanding issue of income tax on British oil and gas exploration companies, cautioning any further delay may hurt foreign investment in the country.

The request was made by Deputy High Commissioner and UK Trade and Investment Director Francis Campbell in a meeting with Finance Minister Dr Abdul Hafeez Shaikh.

The UK delivered the message at a time when total foreign investment in the country has plummeted almost 59% from July through October, as compared to the same period of last year.

British oil and gas exploration companies have long been demanding Pakistan to resolve the dispute over the rate of income tax applied to them. Under bilateral treaties signed in the latter part of the last century, foreign companies should have been taxed at the rate of 50 to 55%, while the government used to charge an average rate of 52%.

However, in 2007, the government fixed a flat rate of 55% that increased companies’ liabilities by three per cent. The companies have been demanding reversal of the decision on the basis of the bilateral investment agreements, said an official of the finance ministry, who attended the meeting.

He said that the UK conveyed that if the government could not amicably resolve the issue, the companies may go to the Supreme Court of Pakistan. According to the official, the UK delegation further said that the litigation would not only affect existing investment but also hinder future investment in the sector.

An income tax tribunal has recently given a verdict against the companies’ stance, that has minimised the chance of any relief that these companies have been contesting for, said an official of the Federal Board of Revenue (FBR). However, the FBR official said that they may also go to the apex court as the IT tribunal has upheld its stance.

At present, up to 30 foreign companies are doing business in the oil and gas exploration sector, of which four are from the UK.

“The FBR would today (Tuesday) initiate discussions with the British companies and give a report to the finance minister by mid-December,” said FBR Chairman Salman Siddique while talking to The Express Tribune.

According to an official announcement, “the meeting deliberated on certain FBR-related issues of some British companies working in the oil and gas sector”.

It added that the finance minister assured the delegation that the issues will be resolved accordingly so that development cooperation could further be strengthened.

Both the sides also reviewed bilateral cooperation in development process and budgetary support committed by the UK. The UK has so far disbursed £60 million out of £120 million.

The remaining amount has been diverted to the Citizen Damage Compensation Programme (CDCP) phase-II. Pakistan and the UK had signed a 10-year Development Partnership Arrangement in 2006.

Published in The Express Tribune, November 29^th, 2011.