ISLAMABAD: The Special Investment Facilitation Council (SIFC) has endorsed plans to reverse budgetary measures that could potentially shut down refineries and jeopardize a $6 billion upgrade program.
During a high-level meeting attended by refinery representatives and officials from the Petroleum Division, Ministry of Finance, and Federal Board of Revenue (FBR), executives highlighted that the sales tax exemption on petroleum products would prevent refineries from claiming input tax refunds on purchases and services. This issue, combined with a 2% additional customs duty on imported equipment, would significantly increase project costs.
The Petroleum Division supported reversing these measures, noting that they could halt refinery operations and modernization efforts. The IMF had pressured the government to halt refunds, leading the FBR to offer sales tax exemptions to avoid refund claims.
Refinery executives argued that these exemptions would increase upgrade project costs by 20%, making feasibility studies impractical. They stressed that sales tax exemption would prevent refineries from reclaiming approximately 70% of input tax, negatively impacting financial results as they cannot pass increased costs onto customers due to regulated sale prices.
The Oil Companies Advisory Council (OCAC) expressed concern that the budget measures would hinder efforts to produce environmentally friendly fuels. The Cabinet Committee on Energy (CCOE) had recently extended the deadline for refinery upgrade agreements by six months, but budget measures still posed significant challenges.
Three refineries—Attock Refinery Limited, National Refinery Limited, and Pakistan Refinery Limited—had agreed to invest $3 billion in upgrades. However, Pak Arab Refinery (Parco) and Cnergyico PK sought more time, leading to the extension.
The Sales Tax Act 1990 amendment, proposed through the Finance Bill 2024, would exempt several petroleum products from sales tax, preventing refineries from claiming refunds on input tax. This change would make refinery operations unsustainable, potentially rendering the $4.5 billion refinery upgrade policy redundant and depriving Pakistan of significant economic benefits.
The SIFC’s backing of plans to reverse these budget measures aims to ensure the continuation of refinery operations and the successful implementation of the refinery upgrade policy.
