Islamabad: The government of Pakistan has introduced amendments to the Pakistan Oil Refining Policy 2023, aimed at resolving issues that had previously delayed the execution of Upgrade Agreements by refineries. The revisions come after changes in the Finance Act 2024 shifted major petroleum products from a zero-rated to an exempt sales tax regime, impacting input tax claims for refineries.

According to JS Global, the amended policy maintains a minimum 10% customs duty/regulatory duty on motor spirit (MS) and high-speed diesel (HSD) for seven years. In cases where these duties are reduced or withdrawn, equivalent measures will be implemented to maintain protection for refineries. The policy also addresses sales tax disallowance by ensuring reimbursement through the Inland Freight Equalization Margin (IFEM) for fiscal year 2026 and for the duration of the Upgrade Agreements, until a permanent solution is established. Additionally, refineries are required to surrender incentives availed under the previous policy, with eligibility reset for seven years from the date of signing the new agreements.

A significant adjustment includes the reduction of the deemed duty on HSD from 7.5% to 5% for refineries that missed the October 2024 deadline, with funds withheld to be deposited in four equal installments. Refineries that fail to sign agreements by October 1, 2026, will see further reductions in deemed duty to 2.5%, with full withdrawal by November 15, 2026. The amendments are seen as a positive development for listed refineries such as Pakistan Refinery Limited (PRL), National Refinery Limited (NRL), and Attock Refinery Limited (ATRL), enhancing the prospects for long-delayed upgrade projects. The next major step is the signing of the Upgrade Agreements, with a deadline set for October 1, 2026.