Islamabad Policy Institute (IPI) on Wednesday proposed a review of the ‘turnover tax’ on the oil marketing companies in the upcoming federal government’s budget for FY-2020-21 saying the tax was affecting the viability of the petroleum industry’s downstream sector. The think tank launched a report on the turnover tax, which contends that the tax was discriminatory, arbitrary and against the spirit of tax laws. It, therefore, proposed a review of the formula for the imposition of the tax on downstream sector and its rate. The think tank works on energy security issues. The think tank’s distinguished fellow on energy sector Dr Ilyas Fazil, who authored the report, while speaking at an in-house meeting, recalled the unjust financial burden on the OMCs because of turnover tax. He said OMCs, which contribute in a big way to the national economy, were already operating in a very challenging fiscal environment. Turnover tax is being currently levied on the OMCs at the rate of 0.75 percent as the ‘minimum tax under Section 113 of the Income Tax Ordinance 2001’. Dr Fazil regretted that turnover over tax was being applied on the cumulative per liter price of petrol and HSD, which comprised taxes like petroleum levy and sales tax, besides distribution costs. “The factual position is that in substance only fixed margin is the turnover/revenue of the OMCs. Therefore, for the purpose of minimum tax u/s 113 of the Ordinance, only fixed margin needs to be considered,” he maintained. The fixed margin for OMCs on petrol and HSD in Rs 2.97 against retail prices of Rs 108.56 for petrol and Rs 110.76 for HSD. Dr Fazil argued that, “the rate of 0.75% of turnover is excessive as the OMCs are bound to sell the goods on fixed margin which constitutes less than 3% of the turnover; and where margin is less than 3% of the turnover (meaning gross profit lesser than 3% of turnover) imposition of minimum tax at the rate of 0.75% of the turnover is harsh and exorbitant.” He explained that the objective of minimum tax was to require the companies which suffered loss or made low profit during a tax year to contribute reasonable amount in relation to their respective turnover towards the government exchequer during that year – something they would be entitled to adjust against normal tax liability of subsequent years. The OMCs, because of this anomaly, he observed, are paying significantly higher than the 29 percent stated Corporate Tax Rate in the country. The report claims that the turnover tax is effectively negating the provisions of Section 57 of the Income Tax Ordinance, 2001 and is putting a significant additional financial burden on the long term viability of the regulated petroleum sector. It further notes that although the profit margin of petroleum dealers, petroleum agents and distributors was higher than that of OMCs, the petroleum dealers operating petrol pumps were exempt from this tax and petroleum agents were enjoying low rate of 0.25 percent. “This is discriminatory, arbitrary and absurd as in similar sector the persons with high profit margin pay no/lesser percentage of tax on turnover while the OMCs having fewer profit margins suffer higher rates,” the report said. Citing examples of other sectors like dealers, sub-dealers, retailers and wholesalers of fast moving consumer goods, sugar, cement and edible oil that have been allowed discounted rate of 0.25 percent under Clause (24D) of Part II of the Second Schedule to the Income Tax Ordinance, 2001, the report stated that petrol and HSD also fell in the definition of fast-moving consumer goods and needed to be treated at par with regards to rate of turnover tax.