The government has aimed to save approximately Rs20 billion annually after changing the status of petroleum products from zero-rated to sales tax exempt in the 2024-25 budget.
This change in status is expected to have a positive revenue impact of Rs. 18-20 billion for the government.
However, the industry is now unable to claim refunds due to the shift from zero-rating to sales tax exemption for petroleum products. Prior to the 2024-25 budget, the industry was able to claim refunds because of the zero-rating status.
The refineries and oil marketing companies are requesting the government to reconsider the amendment made in the Finance Act 2024. They argue that the change will result in disallowing up to 80-85% of their input tax, leading to a substantial increase in their operating and project costs.
The Federal Board of Revenue (FBR) is currently examining a proposal to impose a lower sales tax rate of 3-5% on petroleum products, in an effort to address the concerns raised by the industry.
During the 2024-25 budget preparation, the proposal to impose a standard 18% sales tax on petroleum, oil, and lubricant (POL) products was rejected by the Prime Minister. The reason for rejecting this proposal was that it would be inflationary and have an immediate adverse impact on the general public.
Previously, motor spirit (petrol), high-speed diesel, kerosene, and light diesel oil (LDO) were subject to the sales tax, but they have now been made exempt from the sales tax levy.
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