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Reduction in deemed duty on the anvil

By Zafar Bhutta

ISLAMABAD: The government is likely to reduce the deemed duty from 10 percent to 5 percent for oil refineries in an attempt to stabilise the oil prices in the country and a summary has been prepared in this regard that would be presented before the Economic Coordination Committee (ECC) of the cabinet for the formal approval.

Chairman Senate Standing Committee on Petroleum and Natural Resources, Senator Dilawar Abbas, informed during a press conference here Thursday. He said that Senate Standing Committee has also recommended reducing the deemed duty for the oil refiners.

A senior official in petroleum ministry told Daily Times that the 10 percent deemed duty was imposed for the protection of oil refineries in Pakistan and the government had asked the refineries to expand their operational activities in the country.

He said that Pak Arab Refinery (PARCO) was the only refinery that had expanded its operation but other refineries had not made any progress in this regard. He said that oil refineries, from July 1, 2002 were allowed to charge a 10 percent deemed duty on some of their products enabling them to run their operations on a self-financing basis if their return on assets remained below 40 percent. He further informed that after the imposition of deemed duty, which was an incentive, these refiners had earned Rs 8 to Rs 9 billion in only an year. He said that during that time, it was also decided that the decision of allowing deemed duty would be reviewed after one year but no movement had been made so far due to strong oil lobby, official said adding the earning through deemed duty was increasing day by day after the hike in the oil prices in the international market.

Finance ministry claims that the earning of oil refineries through deemed duty spiked to Rs 27 billion during the last financial year 2007-08, but on the contrary oil refineries claim that their earning through deemed duty stood at Rs 12 billion during the said period. Official were of the view that deemed duty is an additional burden, which was being received from the consumers. Official further informed that oil refineries have resisted the move to abolish or reduce deemed duty and conveyed to the government that if the deemed duty is withdrawn their business in Pakistan would face further difficulties. Oil refineries claim that the removal or reduction in the deemed duty would disturb their expansion plan in the country. They say that they were paying 30 percent taxes and the removal or reduction of the deemed duty would lead to loss for the refineries. They said that they were the main contributors of helping the government to meet the oil requirements. If their operations were not expanded after the removal of deemed duty, the government would have to make alternative arrangements for local crude oil refining.

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