HomeAsia10 year tax holiday for oil refineries ends

10 year tax holiday for oil refineries ends

ISLAMABAD: Following talks with the refining industry, the petroleum division has waived 10-year tax exemption protection, reduced the government’s contribution to finance upgrades of existing oil refineries and increased compliance requirements.

The Cabinet Committee on Energy (CCOE), led by Planning Minister Asad Umar, had earlier approved a stimulus package for modern refineries that included a 20-year tax holiday, but allowed such protection to existing refineries for refurbishment. refused to give.

Sources said that the Petroleum Department has now removed both the objections raised by the CCOE regarding incentives to the old refineries operating in the country. The 10-year tax holiday has been abolished and the advance government contribution has been reduced to 30 per cent in the final draft, while 40 per cent has been scrapped by the CCOE.

This contribution is to be generated by way of 10 per cent customs duty on petrol and diesel and kept in a special reserve account for upgradation of existing refineries and has already been included in the Finance Bill for 2021-22. Under the revised policy, there will be no guarantee of rate of return for existing refineries provided by the regulator or the Government of Pakistan and refineries will be allowed to open and maintain foreign currency accounts. They will be allowed to keep a certain part of the export proceeds in foreign currency, if any, to meet the operational requirements.

A special account for upgradation/expansion will be maintained by each refinery in NBP

Effective January 1, 2022, a 10 pc as import duty on the import of motor gasoline and diesel of all grades as well as any other white product used for fuel for any type of motor or engine There will be tariff protection. 31, 2027,” the policy said.

A ‘Special Reserve Account’ will be maintained by each refinery for upgradation/modernisation/expansion in a separate bank account to be opened with the National Bank of Pakistan. Any incremental revenue (net of taxes) earned by the refineries based on the revised tariff structure (over and above the existing pricing mechanism for refineries) will be transferred to the ‘Special Reserve Account’.

It shall appear separately in the books of accounts of the Company, which shall be used exclusively for upgradation, modernization or expansion projects and shall not be used for distribution of dividend or adjustment of losses or any other general corporate purposes of existing refineries.

Refineries will be entitled to withdrawal from the ‘Special Reserve Account’ once the EPC contract is awarded for the respective upgradation, modernization or expansion project. Withdrawals from ‘Special Reserve Account’ will be utilized on a proportionate basis.

These funds will be used exclusively for upgradation, modernization and expansion and petrochemical projects not exceeding 30 pc (net of taxes) of the total project cost, while the remaining 70 pc will be funded by refineries on their balance sheets . Form of corporate debt or sponsor equity or both. The balance in the ‘Special Reserve Account’ in excess of 30 per cent of the total cost of the project, verified by independent auditors (from the big four audit firms), will be settled through a mechanism to be devised by the Oil and Gas Regulatory Authority.

To be eligible for these financial incentives for upgradation, modernization or expansion, the existing refinery would have to make an upgrade or expansion plan with the government before December 31, 2021 and provide an undertaking to the Petroleum Division regarding the proposed timeline, possible configuration. Will have to do Possible product slate after the upgrade (ensuring production of the Eurovi Mogas and diesel), size, as well as all other relevant information. Upon receipt of this undertaking, the Department of Petroleum, the Refinery to continue to market its products, till the date of completion of the consent of the upgrade, but subsequently after 31st December 2026, an ‘exemption’ from the fuel specifications to be notified by Petroleum ‘ will provide. Partition till October 31, 2021.

After June 30, 2022, refineries that do not provide such undertaking, and do not have ‘exemption’, will not be allowed to sell their products in Pakistan if they do not meet the notified fuel specifications.

Published in Dawn, October 14, 2021

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