Prime Minister calls for urgent fix on sales tax hurdle on refinery upgrade projects

• The IMF rejects the 1-2% sales tax proposal and calls for an 18% fuel tax.
• The 18% sales tax could increase the price of petrol by Rs 45 per litre.
• Annual foreign exchange loss of $1 billion attributed to refinery upgrade delays.

ISLAMABAD: Prime Minister Shehbaz Sharif has taken note of the impasse over the non-implementation of the Brownfield policy, which aims to upgrade local refineries to produce Euro-V compliant petrol and diesel. The News was mentioned.

“The Chief Minister directed the Directorate of Petroleum to hold a meeting with the Finance Directorate, FBR and Ogra to reach a consensus in view of the difference of opinion among the stakeholders within two weeks to resolve the issue of sales tax exemption” , said a senior Energy Ministry official. The News.

The issue stems from a fiscal measure included in the 25th Finance Bill, which was designed to pave the way for a $5-6 billion investment in the refinery sector.

It is a fiscal measure imposed in the 25th financial bill, paving the way for investment of $5-6 billion in the refinery sector.

The Prime Minister’s Office (PMO), in its November 29 notification, also directed the petroleum secretariat to submit firm options for perusal, the official said.

On November 3, he said, the Special Investment Facilitation Council (SIFC) had set a deadline of November 10 to the Petroleum Directorate (PD) to ensure resolution of the sales tax (ST) exemption issue in collaboration with the Finance Directorate and the FBR, which affects the viability of upgrading brownfield refineries.

The Petroleum Directorate did not find a solution even after November 10.

However, he said, during the recent IMF mission visit, the Fund rejected the government’s proposal which seeks to impose 1-2% sales tax on petrol, HSD, kerosene oil and LDO by removing the exemption imposed on Economic Bill for 2025.

The Fund had asked the government to increase the sales tax on POL products to 18% instead of 1-2%. “There is a fear that the 18% sales tax will increase the price of petrol by Rs 45 per litre, which the existing regime cannot sustain,” the official said.

Refiners have long called for the removal of the sales tax exemption, arguing that the change in the Finance Act would have a major impact, making refining operations unviable, making projects and investments to upgrade local refineries financially unsustainable , affecting the project’s internal rates of return. IRR).

Unresolved issues result in an annual loss of $1 billion in foreign exchange for the state.

According to the refiners, the government measure effectively nullifies the $1.65 billion stimulus package offered through the ESCROW account, resulting in a loss of $1.152 billion due to the impact of the sales tax exemption.

Refineries argue, according to the official, that this change has made their upgrading projects financially unviable and unsustainable.

The shift from zero-rated to exempted sales tax on Motor Spirit (MS), High-Speed ​​Diesel (HSD), Kerosene Oil and Light Diesel Oil (LDO) will only increase the cost of upgrade project, they say.

Central government may reduce petroleum levy (PL) by Rs 45 per liter on POL products and levy sales tax of Rs 45 (18%) per litre.

The government currently charges Rs 60 per liter as PL.