ISLAMABAD:
The Oil Companies Advisory Council (OCAC) has urged the government to abolish the super tax and address unresolved tax and margin issues in the upcoming Budget 2026, warning that continued neglect could jeopardize the financial viability of the petroleum sector.
In its formal proposals to the Federal Board of Revenue (FBR), OCAC emphasized that the Finance Act 2024’s introduction of sales tax exemptions on petrol, HSD, kerosene, and LDO—previously zero-rated—has led to the accumulation of input tax. Since product prices are state-regulated, companies cannot pass on these costs, adding over Rs33 billion to their burden in Tax Year 2025 alone. The Council proposed reinstating petroleum products under the taxable regime to reclaim input adjustments.
OCAC also called for the abolition of the super tax, labeling it a recurring and damaging measure that undermines the formal sector’s sustainability. It further recommended reducing the minimum tax under Section 113 to 0.25% for OMCs and refineries, as current margins are fixed and cannot absorb excessive tax liabilities.
The Council demanded the withdrawal of sales tax on advance receipts, restoration of the Commissioner’s authority to issue exemption certificates, and the reinstatement of final tax treatment on exports—vital for refineries facing low local demand for products like furnace oil and naphtha.
OCAC also pushed back against the 25% disallowance on advertising and sales promotion expenses for companies with royalty-linked transactions, arguing this discourages foreign investment. It called for restoring the tax exemption on government subsidy income, critical for firms implementing state-mandated supply measures.
Highlighting the adverse impact of revised salaried tax slabs and a 10% surcharge on high earners, OCAC recommended reverting to pre-2024 income tax structures to support workforce retention and corporate competitiveness.
Beyond taxation, OCAC demanded an urgent revision in Oil Marketing Companies’ (OMC) margins, referencing Rs73.48 billion in unadjusted sales tax from April 2022 to June 2024. It noted the ECC-approved margin formula based on PSO’s cost structure, and called for its implementation and annual updates tied to inflation, financing, and operational costs.
The Council concluded that resolving these issues is critical to ensuring the energy sector’s resilience amid smuggling threats, regulatory constraints, and rising operational costs.
Story by Zafar Bhutta
