Sales tax exemption hikes project costs by $763 million; IMF approval tied to GST resolution

The Executive Committee (EC) of the Special Investment Facilitation Council (SIFC) has set January 7, 2025, as the deadline to finalize upgradation agreements between the Oil and Gas Regulatory Authority (OGRA) and five refineries under the Brownfield Refinery Upgradation Policy.

Sources disclosed that during a recent meeting, the EC raised concerns over delays in implementing the policy, launched in August 2023, to attract $5–6 billion in investment. The Petroleum Secretary noted that the sales tax exemption on petroleum products, introduced in the 2024-25 budget, has raised project costs by $763 million, threatening refinery operations and their sustainability.

The EC directed the Petroleum Division to collaborate with the Finance Division and other stakeholders to tackle these issues. A working group meeting will be held to finalize amendments, with the Petroleum Division expected to submit a summary of required actions by January 15, 2025.

Meanwhile, OGRA has been tasked with addressing operational losses from the sales tax exemption via the Interim Pricing Mechanism (IFEM) while ensuring timely agreements.

Three refineries—Attock Refinery Limited (ARL), Cnergyico PK Limited, and Pakistan Refinery Limited (PRL)—have signed upgradation agreements, joining Pakistan Refineries Limited (PRL).

However, Pak-Arab Refinery Limited (PARCO) is still working on defining the scope of its upgradation project.

Refineries have voiced concerns about the Goods and Services Tax (GST) on petroleum products, which remains a key hurdle. They emphasized resolving this issue is vital for securing IMF approval, as the matter is currently under IMF review in Islamabad.

In a joint letter to OGRA Chairman Mansoor Khan, refinery CEOs referenced earlier communication with the Petroleum Division, seeking clarity on reducing deemed duty on High-Speed Diesel (HSD) under the policy. They also requested an extension of the deadline for signing upgradation agreements, reaffirming their commitment to investing over $6 billion in facility upgrades.

The SIFC’s EC has reiterated the importance of finalizing these agreements to implement the policy and modernize refineries. Despite discussions, including an SIFC meeting on October 22, 2024, unresolved issues remain. The EC stressed the urgency of addressing these challenges in the national interest.