Govt weighs 20% windfall tax on oil sector profits earned during Gulf war

The federal government is considering proposals to impose a 20% windfall gain tax on oil sector companies or recover excess profits earned during the recent Gulf conflict through an alternative mechanism aimed at compensating consumers, The Express Tribune reported, citing government sources.

One proposal under consideration is the imposition of a 20% windfall gain tax on oil refineries and marketing companies and such a measure could be implemented through a Statutory Regulatory Order without requiring amendments to the Income Tax Ordinance in the upcoming budget.

Another option being reviewed is recovering the gains from companies and transferring the amount to consumers through adjustments in petroleum prices.

Prime Minister Shehbaz Sharif has constituted a committee headed by Finance Minister Muhammad Aurangzeb to review key budget matters, including options to recover an estimated ₨72 billion from oil marketing companies.

Officials said the government estimates that oil refineries and oil marketing companies earned combined gains of nearly ₨130 billion after petroleum prices were increased by ₨55 per litre following the start of the war.

However, officials said the Petroleum Division was not in favour of immediate recovery of windfall gains until the conflict ends and international oil prices stabilise. The division has also argued that companies should be compensated for inventory-related losses.

A senior government official said the committee held its first meeting on Monday, though detailed discussions on recovery mechanisms were deferred until the crisis situation eases.

The committee has also been tasked with reviewing financing mechanisms for cross-subsidies currently funded by the Petroleum Division and examining legal options for recovering windfall gains from oil companies.

In addition to petroleum-related matters, the committee will review tax policy proposals prepared by the Tax Policy Office of the Finance Division and assess the financial and operational requirements of ministries including Commerce, Power, Privatisation and Information Technology.

Separately, the committee has been directed to review the salary structure of foreign-qualified professors and researchers working under the Tenure Track System, who have not received salary increases since 2021 despite sharp inflation.