Following discussions with the refining industry, the Petroleum Division has reduced the 10-year tax exemption protection, reduced the government’s participation in the financial upgrade of existing oil refineries, and increased compliance requirements.
According to the Dawn newspaper, the Cabinet Committee on Energy (CCOE), headed by Federal Minister for Planning Asad Omar, had approved a concessional package for modern refineries, which included tax breaks for 20 years but not renewals. Therefore, the existing refineries were denied such protection.
Sources said that the Petroleum Division has now removed both the objections raised by the CCOE regarding the concessions given to the old refineries operating in the country.
In addition, the 10-year tax exemption has been scrapped and the government’s contribution to the final draft has already been reduced to 30 percent as the committee had rejected 40 percent.
This contribution is to be obtained through 10% customs duty on petrol and diesel and should be kept in a special reserve account to finance the upgrade of existing refineries and is already included in the Finance Bill 22-2021.
Under the revised policy, there will be no guarantee of the rate of return for existing refineries by the regulator or the government of Pakistan and refineries will be allowed to open and operate foreign currency accounts.
Under the policy, they will be allowed to keep a certain portion of their export earnings in foreign currency and, if any, meet operational requirements.
The policy states that from January 1, 2022, to December 31, 2027, motor gasoline, all types of diesel as well as other white products used as fuel will be subject to tariff protection in the form of a 10% import duty.
A ‘special reserve account’ will be maintained by each refinery for up-gradation / modernization/expansion in addition to the account opened in the National Bank.
Based on the revised tariff structure (above the current pricing system for refineries), any incremental income earned by refineries (net tax) will be transferred to a ‘special reserve account’.
It will appear separately in the company’s books of accounts which will be used exclusively for up-gradation, modernization, or expansion projects and will not be used for profit sharing or loss adjustment or any other general corporate purposes of the existing refinery.
Refineries will be entitled to withdraw (amount) from ‘Special Reserve Account’ after receiving an EPC contract for related up-gradation, modernization, or expansion project.
In addition, the amount withdrawn from the ‘Special Reserve Account’ will be used on a proportional basis.