Petroleum industry wants changes to turnover tax regime

Want to be taxed on company profits, not revenues.

KARACHI: Lobbyists have renewed efforts to seek changes in the tax regime governing the petroleum industry, a top industry official told The Express Tribune. The current method of taxation uses petroleum companies’ turnover for tax calculations instead of the profits earned.

“This tax should be on profit and not on our revenues,” said Adil Khattak, general secretary of the Oil Companies Advisory Committee (OCAC), a representative body of all petroleum marketing companies and oil refineries in the country.

“The government has to realise that we operate under a tightly regulated regime. We might have huge revenues, but profits could be thin,” he said.

The previous government had imposed turnover tax of 1% on multiple industries, including the textile and oil sectors, two years ago in a bid to boost dwindling revenues.

It was reduced to 0.5% in the last fiscal year, but some companies continue to feel the pressure as it often exceeds the average 35% corporate tax rate.



Khattak, who is also the CEO of Attock Refinery, said there should be an exemption from this mode of taxation, especially in the case of refineries. “If the tobacco industry can enjoy a waiver, so can we,” he complained. While he did not say if the companies in question want to revert to the corporate tax rate, there are reports that some OCAC members are seeking a reduction in turnover tax to 0.2%.

However, contrary to their concerns, the petroleum industry has posted an increase in profits over the past few months even with the current rate of turnover tax.

According to Summit Capital analyst Shahid Ali, refineries recorded profits to the tune of Rs4.793 billion in the nine months to March 2013, compared to Rs3.096 billion earned in the same period of the previous year.

“The refinery sector’s profitability has improved substantially from last year due to better GRM’s [gross refining margins] and other income during the year,” he said in a report.

The Pakistan Muslim League Nawaz’s (PML-N’s) victory has raised hopes that the tax structure might be changed in the next budget to encourage more companies to invest in the sector.

“The PML-N is generally considered to be business-friendly. So there are chances that turnover tax might be done away with,” said Khurram Schehzad, head of research at Arif Habib Securities.

“The industry has been hard-pressed for some years now, and all eyes are on the budget because it will set the direction to where the government wants to take this country,” he added.

Published in The Express Tribune, May 25^th, 2013.

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