FBR seeks documents from oil marketing companies

FBR has sought documents related to sales and margins on petroleum products in a bid to resolve the turnover tax issue

KARACHI: The Federal Board of Revenue (FBR) has sought documents related to sales and margins on petroleum products from oil marketing companies in a bid to resolve the turnover tax issue.

FBR officials asked for submission of the documents in a meeting held with representatives of oil marketing companies (OMCs) here on Thursday. During the deliberations, representatives of OMCs gave a presentation on the impact of the increase in turnover tax from 0.5 to one per cent.

The government enhanced the turnover tax in the budget for 2010-11 announced in June,  which according to estimates will cause a dent of 55 to 60 per cent to the profits of OMCs.

In the meeting, OMCs asked the taxmen to remove the turnover tax altogether as it takes away a significant part of their profits. If that is not possible, then at least reduce the tax rate to the previous 0.5 per cent, they said.

“OMCs receive fixed margins on sales of petroleum products so their incomes are limited. And the high turnover tax is an additional burden,” an official of an oil marketing company said while talking to The Express Tribune.

Petroleum products like petrol, diesel, kerosene, jet fuel and high octane blending component but excluding lubricants are regulated by the government.  “We and the dealers receive only small margins. Rest of the amount goes to the government.” Elaborating, the official said, OMCs get Rs1.35 margin on the sale of one litre of diesel and dealers receive around Rs2. The remaining amount, out of the price of Rs73.03 for one litre of diesel, is bagged by the government and that includes taxes as well.

“The government is already receiving a big amount on sale of petroleum products, putting a question mark over justification to impose the turnover tax,” the official said.

The official said the issue is not expected to be resolved in the next meeting and more deliberations will be needed to arrive at a solution.

“OMCs have low and fixed margins, set by the government, and the one per cent turnover tax will swallow 55 to 60 per cent of their profits,” said Atif Zafar, analyst at JS Global Capital Limited.

Last financial year ended June 30, OMCs were paying 0.5 per cent turnover tax or 35 per cent corporate tax on profits, whichever was higher. However, these two almost remained the same.

Published in The Express Tribune, August 28^th, 2010.