ISLAMABAD: Prime Minister Shehbaz Sharif has taken notice of the impasse over the non-implementation of the Brownfield Policy under which local refineries are to be upgraded to produce petrol and diesel with EuroV specifications.
A senior energy ministry official told The News, “The prime minister has directed the petroleum division to approach the finance division within two weeks to resolve the issue of sales tax exemption in view of the disagreement among stakeholders. Have a meeting with FBR and Ogra.” . This is a budgetary measure introduced in the FY25 Finance Bill, paving the way for an investment of $5-6 billion in the refinery sector.
The official said that the Prime Minister’s Office (PMO) in its November 29 communication also directed Secretary Petroleum to come up with concrete options for review.
On November 3, he said, the Special Investment Facilitation Council (SIFC) has set a deadline of November 10 for the Petroleum Division (PD) to work with the Finance Division and the FBR to exempt sales tax (ST). To ensure resolution of the issue, viability of brownfield refineries upgradation. The Petroleum Division has not come up with any solution even after November 10.
However, he said, during a recent IMF mission visit, the fund rejected the government’s proposal to impose 1-2 percent sales tax on petrol, HSD, kerosene and LDO. was demanded and the exemption given for FY 2025 in the Finance Bill was scrapped.
The fund had asked the government to increase the sales tax on POL products to 18% instead of 1-2%. The official said that it is feared that the 18 percent sales tax will increase the price of petrol by Rs 45 per liter which the present government cannot afford. Refineries have long been asking for removal of exemption from sales tax, changes in Finance Act will have significant impact, refining operations will be unsustainable, projects and investments for upgradation of local refineries will be economically unviable. will be built, which will affect the project’s internal rate of return. IRRs). Unresolved cases are costing the state $1 billion in foreign exchange annually.
According to the refineries, the government’s move effectively cancels the $1.65 billion incentive package offered through the ESCROW account, leaving a loss of $1.152 billion due to the impact of the sales tax exemption. Refineries argue, according to the official, that the change has made their upgrade plans economically unstable and unsustainable. They say that the change in exemption status from zero rating for sales tax on MS, HSD, kerosene oil and LDO will only increase the cost of the upgrade project.
The central government may reduce petroleum levy (PL) on POL products by Rs 45 per liter and impose a sales tax of Rs 45 (18pc) per litre. The government is currently charging Rs 60 per liter as PL.