- Despite the setback, some refineries are in talks with lenders to secure investment for the upgrade projects
Pakistan’s efforts to upgrade its oil refineries and produce cleaner Euro-V standard fuels have suffered a major setback, as the International Monetary Fund (IMF) has rejected the government’s proposals aimed at facilitating $6 billion in refinery upgrade projects, The News reported, citing official sources from the Petroleum Division.
The government’s proposals, part of the Finance Bill for FY26, sought to address the issue of sales tax exemption on petroleum products, which had made the upgrade projects financially unviable. The sales tax exemption, introduced in the Finance Bill for FY25, caused a loss of Rs34 billion to refineries and oil marketing companies in the previous fiscal year.
The IMF’s refusal has effectively halted the planned investments, frustrating top government officials, including Federal Petroleum Minister Ali Parvaiz Malik. The minister escalated the matter to Prime Minister Shehbaz Sharif, urging immediate intervention.
Minister Malik had previously stated that the delay in receiving the IMF’s response meant that the government could not address the sales tax exemption issue in the budget for FY26. Following the IMF’s rejection of the proposals, the government is now seeking alternative solutions.
The proposed changes included restoring the zero-rated status for petroleum products and imposing a 10% sales tax to make the upgrade projects financially viable.
However, the IMF rejected the restoration of the zero-rated status and argued that the Federal Board of Revenue (FBR) lacked the capacity to assess whether the imported plants, machinery, or spare parts for the upgrade projects were new or old.
While the IMF did agree to impose a 10% sales tax on motor spirit and high-speed diesel, which would have an impact of Rs25 per litre, it has urged the government to propose new solutions for the refinery upgrades.
Despite the setback, some refineries are in talks with lenders to secure investment for the upgrade projects. However, these lenders are awaiting clarity on the budget for FY26, as the government has failed to resolve the sales tax exemption issue.
Earlier, on May 20, 2025, managing directors and CEOs of Pakistan’s leading refineries met with the petroleum and finance ministers, urging them to address the sales tax exemption in the upcoming budget to ensure no changes in tax policy for the next seven years. This, they argued, was crucial for the initiation of the $6 billion upgrade projects.
