Pakistan’s plans to upgrade its oil refineries hit a roadblock after the IMF rejected key government proposals linked to tax relief. The proposals were designed to support $6 billion in investment aimed at producing cleaner, Euro-V standard fuels. This decision has stalled the upgrade projects, according to officials from the Petroleum Division.
The government had included these proposals in the Finance Bill for FY26, seeking to remove a sales tax exemption introduced last year. That exemption caused a Rs34 billion loss to refineries and oil marketing firms. However, the IMF dismissed the plan, frustrating energy officials and Petroleum Minister Ali Parvaiz Malik, who raised the issue with Prime Minister Shehbaz Sharif.
Originally, the government wanted to restore zero-rated status and add a 10% sales tax to make upgrades financially possible. But the IMF objected, arguing the Federal Board of Revenue (FBR) lacked the capacity to verify whether imported refinery equipment was new or used. The Fund also turned down the zero-rating restoration.
Although the IMF approved a 10% sales tax on petrol and diesel, raising prices by about Rs25 per litre, it told the government to find other ways to support the upgrade initiative. The government is now exploring new policy options, though nothing concrete has been announced yet.
Meanwhile, some refineries are negotiating with lenders to fund upgrades but remain cautious. They are waiting to see if the FY26 budget offers clarity or stability. Earlier, refinery CEOs had asked for no tax policy changes for seven years, calling it essential for launching the massive $6 billion modernisation plan.