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Oil refineries seeking exemption from turnover tax – Alfalah Securities Limited

Karachi: Oil refineries have put forward recommendations urging the government to provide exemption from turnover tax in the new petroleum policy.

According to Alfalah Securities Limited, it is proposed that since the profitability of refineries are not guaranteed or on presumed profit margins, the turnover tax should not be applied on refinery sector. The exchange losses impact should also be absorbed in the pricing formula thereby providing relief from the volatility of foreign currency. The working paper also included that the capping of dividend payment to 50% of paid-up capital as at 1st July, 2002, should in the first phase be linked to the actual paid-up capital and later removed to allow a fair return to the investors on the actual investment in case of ATRL, NRL and PRL.

The demand of petroleum products stood at 20 million tons in FY11 as against local production capacity of 12.93 million tons which is met by imports and the demand is continuously raising. The scenario calls for incentivizing the refinery sector in order to lower the dependence on expensive imports. Moreover, the refineries are operating below their designed capacity due to liquidity crunch arising out of circular debt. Actual local refineries production during FY11 was 9.32 million tons against design capacity of 12.93 million tons. The proposed changes, if approved, would bode well for the refinery sector though Alfalah Securities Limited expects very little benefit to be provided to the sector in the policy.

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