PM’s approval sought for increasing oil margins

ISLAMABAD:

The Petroleum Division has sought the endorsement of Prime Minister Shahbaz Sharif for increasing profit margins of oil marketing companies (OMCs) and dealers and settling the losses of refineries.

Sources said that the Petroleum Division had tabled a summary before the Economic Coordination Committee (ECC), seeking an increase of Rs1.18 per litre in margins for the OMCs and dealers.

It also sought approval for the recovery of financial losses of oil refineries and OMCs amounting to Rs34 billion due to sales tax exemption on petroleum products.

It proposed that the oil industry should be allowed to charge Rs1.87 per litre through the inland freight equalisation margin (IFEM) to recover the losses of Rs34 billion. The third proposal was that the government should impose a 5% general sales tax (GST) on petroleum products in the upcoming budget for fiscal year 2025-26 to shield the oil industry from losses in the wake of sales tax exemption.

Sources said that the ECC had agreed to those proposals, but sought the consent of the prime minister. They said that the first two proposals should be implemented immediately, while the third, pertaining to the imposition of sales tax, was linked to the International Monetary Fund (IMF). Therefore, the government may implement it in the upcoming budget.

The ECC was informed that petroleum products – motor gasoline (Mogas), high-speed diesel (HSD), kerosene and light diesel oil (LDO) – had been classified as “exempted” under the Finance Act 2024. As a result, the input sales tax has become a cost incurred by the refineries and OMCs (estimated at Rs34 billion for financial year 2024-25) and it cannot be recovered through product prices, as these are regulated and fixed by the Oil and Gas Regulatory Authority (Ogra) under the government’s policy.