Prime Minister Shehbaz Sharif has stressed that the government will take all-out measures to save the oil refineries from the looming shutdown due to the difficulty in opening Letters of Credit (LCs) and assured the industry of payments for oil import. The Petroleum Division took up the matter with PM Sharif, pointing out that international banks were not endorsing the LCs opened by the refineries for crude oil import, and the situation could force the closure of refining plants.
“If the issue of LCs worsens, the State Bank of Pakistan (SBP) will make payments for oil import,” a source quoted the PM as saying in a recent meeting. When international banks endorse the LCs, it means that the refineries get one-month credit for crude oil import. Apart from the LCs’ issue, the refineries were also facing increase in taxes. The Petroleum Division took up that matter with Finance Minister Miftah Ismail, who assured the division that the government would reduce the taxes proposed in the budget, sources said.
Meanwhile, the Oil Companies Advisory Council (OCAC) wrote a letter to Anomaly Committee Cochairman and Federal Board of Revenue (FBR) Member IR Policy Afaque Ahmad Qureshi to raise the issues related to the Finance Bill 2022. FBR chairman has constituted the Anomaly Committee to identify and remove the technical and business-related anomalies in the Finance Bill. In this respect, the OCAC, on behalf of its member companies, highlighted the issues and made recommendations for review by the federal government.
The oil industry has been pressing the Ministry of Finance, FBR and other government stakeholders for a reduction and subsequent removal of the minimum tax applicable to the oil companies. Currently, the minimum tax paid by the companies on their turnover, in excess of the normal tax liability, is available for adjustment against the normal tax liability for the subsequent five tax years. This benefit of carry forward is now proposed to be withdrawn. This will impact the companies which have budgeted to utilise these taxes in the forthcoming tax years, and have estimated profit.
“It is recommended that this omission in Section 113 of the ITO 2001 should be reinstated,” the OCAC said. The minimum tax has always been a cash flow benefit for the FBR in case of low profit or loss-making companies with the intention to allow adjustment in future periods, aiming to rationalise the tax incidence linked with the taxable income of an entity, which is the true spirit of the law to tax the net income of an entity and not the turnover, the OCAC said.
The provision of payment of minimum tax in case of losses was a benefit for the companies with an incentive to utilise such payments in the year of profit foreseen in the near future, considering that the companies make financial plans and budget for future operations while keeping in consideration such tax credits. By withdrawing the benefit of carrying forward the minimum tax paid, there will relatively be more tax burden on the loss-making, growing entities as they will be paying taxes on their high turnover regardless of their profit absorbed by the operational costs, it said.
Effective July 1, 2022, the total customs duty on the import of crude oil has been proposed at 5% against the current applicable rate of 2.5%. Currently, due to an exemption available in Serial 144 of Part-III, Fifth Schedule, the 3% customs duty mentioned in the First Schedule does not apply and instead 2.5% duty is applicable. This exemption is proposed to be omitted from the Fifth Schedule due to which 3% customs duty will be applicable.
OCAC said that based on the industry’s understanding with the Ministry of Finance, the customs duty on crude oil was reduced from 5% to 2.5% through the Finance Bill 2021 with an understanding that going forward it would be abolished in line with other raw materials. “It is recommended that customs duty on crude oil be abolished.
However, in view of the prevailing economic and financial condition of the country, if it is needed, the exemption for crude oil under the Fifth Schedule should remain intact, whereby customs duty on crude oil should remain at 2.5% and additional duty should remain 0%, clearly mentioning that in the Finance Act 2023, it will be abolished, thereby providing some kind of relief to the oil refining sector.
Originally published at tribune.com.pk