ISLAMABAD (Kashmir English): The government’s proposal to waive sales tax on petroleum products has been rejected by the International Monetary Fund (IMF), which has dealt a major blow to the $6 billion upgrade project of local refineries.
According to sources, the government is now rethinking its policy to support the refining sector. Officials in the Ministry of Energy have confirmed that the Petroleum Division is preparing a new policy summary, which will soon be presented to the Cabinet Committee on Energy.
The new policy will include various incentives, including sales tax exemption on the import of plants and machinery, which will be on par with the Greenfield Refinery Policy.
According to sources, a key proposal is that the Inland Freight Equalization Margin (IFEM) will be guaranteed at Rs 1.87 per liter, which will be given to refineries for the next 6 to 7 years. The policy will also include a “stability clause” so that the policy remains consistent and the financial plans of refineries are not affected.
According to sources, the government is considering creating a special account (escrow account) for some refineries, in which about $900 million will be deposited.
This amount, including interest, could increase to $1-1.6 billion, which will be used to support refineries affected by the end of tax exemptions.
The urgent need for a policy change arose because the general sales tax on petrol, diesel, kerosene, and light diesel oil was abolished under the Finance Bill for the fiscal year 2025.
The move was intended to provide relief to the public, but it deprived refineries of the right to adjust their input tax, making their upgradation projects financially unsustainable.
So far, only Pakistan Refinery Limited has signed an agreement with the government in this regard, while the rest of the refineries have not taken any steps yet.
