Daily Times

Oil Marketing Association of Pakistan (OMAP) has raised concerns regarding the recent budget announcement and its implications for the petroleum industry, which is a crucial component of our nation’s economy.

In a letter to Chairman Federal Board of Revenue (FBR), Chairman OMAP Tariq Wazir Ali said that FBR should olay its role to prevent the collapse of the petroleum industry, which plays a vital role in the economic stability and development of Pakistan. We hope that the FBR will take our concerns and recommendations into serious consideration, he added.

Talking about Sales Tax on Petroleum Products, Tariq Wazir further wrote that The recent declaration that POL products—specifically MS (Petrol), High Speed Diesel Oil, Kerosene, and Light Diesel Oil—are now classified as exempt goods rather than being charged at the standard rate of tax will have significant ramifications on the operational expenses of the OMC sector. The move will have major implications on the operating expenses of OMC sector as previously the sales tax on Freight and Capital goods is adjustable. In addition, general expenditure will also rise due to the unclaimable sales tax of 18%.

For Freight the unclaimable sales tax of 15 % and capex, the unclaimable sales tax of 18 % will become part of the cost hence would require additional requirement of funds. It will cut the working capital of already cash strained OMC sector. For general opex overall impact will be rise in cost by 18%.

Keeping in view the above narrated facts if zero rated is necessitated, the supplies and services to oil marketing companies should also be zero rated in the sales tax.

Another important issue of Turnover Tax was also raised in the letter. Chairman OMAP said that the application of a minimum tax rate of 0.50% or turnover tax on Oil Marketing Companies (OMCs) has a detrimental impact on their profitability and cash flow. This is particularly problematic for OMCs with thin margins or disproportionately low profits compared to revenue, as the minimum tax rate is not suitable for these companies. Currently, the turnover tax equates to PKR 1.02 per liter, which is unjustified in a regulated margin environment.

Therefore, we request to reduce the turnover tax to 0.25%, so the OMCs retain a greater portion of their margins, enabling them to better navigate the current economic challenges. In light of the aforementioned concerns, we respectfully request the Federal Board of Revenue to reconsider the proposed decisions. A balanced approach that takes into account the health of the oil marketing sector, consumer interests, and economic stability would be in the best interest of all stakeholders. We urge consideration of this issue and potential revisions to the tax policy to mitigate the adverse effects on OMCs.

In contrary if government insists to charge turnover tax 0.50% then it must be charged on margin instead of gross sales.

He also raised concerns Regarding the Proposed Increase in Petroleum Levy. ‘In the recent budget proposal to increase the petroleum levy by PKR 20 per liter, raising it from PKR 60 to PKR 80 per liter will have several detrimental impacts on oil marketing companies (OMCs) and the broader economy, which warrant careful reconsideration’, he said.

The immediate increase in the petroleum levy will substantially elevate the cost of petroleum products. Given the competitive nature of our industry, OMCs foresee a significant drop in demand. This scenario is likely to compress profit margins severely, leading to reduced financial stability and investment capabilities for OMCs. The elasticity of demand for petroleum products suggests that significant price hikes can lead to lower consumption volumes.

The proposed levy increase also brings potential macroeconomic repercussions. Higher transportation costs can lead to increased prices for goods and services across the board, contributing to inflationary pressures. This can adversely affect the purchasing power of consumers and potentially slow down economic growth. It is requested to either keep it as zero rated instead of shifting to exempt goods or allow supplier to charge zero percent sales tax to OMCs.