KARACHI: The Oil Companies Advisory Council (OCAC) has urged the government to introduce wide-ranging fiscal and regulatory reforms for the petroleum sector in the FY2026-27 federal budget, warning that mounting taxes and liquidity constraints are undermining the industry’s financial viability.
In a letter addressed to Dr Najeeb Memon of the Tax Policy Office at the Ministry of Finance, the council said that, despite earlier representations, key issues remain unresolved and have worsened due to a rising tax burden, delayed refunds, and the disallowance of input taxes following the sales tax exemption on petroleum products.
The OCAC noted that petroleum prices and margins are fully regulated by the government, leaving oil marketing companies (OMCs) unable to pass on additional tax costs to consumers. “These measures directly erode profitability, restrict infrastructure investment, and weaken the sector’s financial health,” it said.
The council said the Finance Act 2024, which exempted major petroleum products from sales tax, has led to the accumulation of non-adjustable input taxes estimated at more than Rs33 billion for tax year 2025, with further increases expected in FY26.
In addition, more than Rs72 billion in input tax claims from the earlier zero-rated regime remain stuck, creating severe liquidity constraints for companies. The OCAC said delayed settlements have also resulted in potential financial charges of around Rs7-7.2 billion.
Among its key proposals, the council called for restoring the taxable status of petroleum products, settling accumulated input tax refunds with compensation for delays, and reducing the minimum tax on turnover from 0.5 per cent to 0.25 per cent, with a gradual phase-out.
It also recommended exempting LNG imports from minimum tax under Section 148, extending the minimum tax carry-forward period from two to five years, and removing the super tax for the regulated petroleum sector.
Highlighting operational challenges, the OCAC proposed reforms to withholding tax regimes, the introduction of automated refund systems, and the withdrawal of discretionary powers that allow restrictions on input tax adjustments.
The council also stressed the need for incentives to promote investment in fuel storage and logistics infrastructure, as well as tax relief for salaried employees to support workforce retention in the sector.
“The petroleum sector plays a critical role in Pakistan’s energy security and economic stability. However, the cumulative impact of turnover-based taxation, blocked liquidity and a rising compliance burden is adversely affecting its sustainability,” the letter said.
