Oil marketing companies (OMCs) are reportedly seeking a revision to the Income Tax Ordinance 2001 to reduce the burden of taxation on petroleum products.
In this regard, the Oil Companies Advisory Council (OCAC) has written to the Federal Board of Revenue (FBR) asking for amendments to the minimum tax under Section 113 of the ordinance. The current rate of taxation is said to be eating up around 23.5% of OMCs’ fixed margins, a figure that is expected to rise in the wake of anticipated price increases.
The OCAC has proposed a reduction in the minimum tax rate applicable to OMCs and refineries from 0.5% to 0.25%, as well as the ability to carry forward minimum tax credit for up to five years. A previous letter to the FBR on the matter was sent in early April and followed by a meeting, which did not yield desired results.
The price of petroleum products is set by the government, as is the fixed margin covering all costs related to establishing and running OMCs, including capital and financial costs. The minimum tax is currently calculated as 0.5% of this margin, but the OCAC argues that this eats into OMCs’ profits and is unsustainable. The reduction in the minimum tax would reduce this burden and allow OMCs to maintain margins amid price increases.
OMCs purchase petroleum products from local refineries and also import them for further distribution through petrol pumps and to industrial and commercial users. The selling price of these products is determined by the Oil and Gas Regulatory Authority, with the margin per litre to be retained by OMCs fixed by the government.
Although OMCs prepare financial statements in accordance with international accounting standards and the Companies Act 2017, their actual margin from the sale of petroleum products is fixed and determined by the government. The OCAC has urged the FBR to make amendments to the Income Tax Ordinance 2001 to ensure the sustainability of the sector in the face of rising costs and taxes.
