The Oil Companies Advisory Council (OCAC), representing Pakistan’s major refining and marketing companies, has warned the Ministry of Finance that the country’s oil sector is facing a severe sustainability crisis. In a detailed proposal for the Federal Budget FY-2027, the industry is calling for urgent reforms to unlock billions in stranded liquidity and prevent further strain on energy infrastructure.
The “stranded billions” crisis
At the center of the concern is a major liquidity bottleneck. The OCAC says about PKR 72 billion in unadjusted input tax remains stranded under the zero-rated regime due to delays in refunds. This is compounded by an estimated PKR 33 billion in non-adjustable input taxes accumulated in tax year 2025, resulting from the classification of petroleum products as sales tax exempt under the Finance Act 2024.
Because petroleum prices are tightly regulated by the government, companies cannot pass these rising tax costs on to consumers. The OCAC says this is eroding profitability and limiting investment in infrastructure.
Push for return to taxable regime
To address the issue, the OCAC is proposing a return to a taxable regime for petroleum products. The group argues this would allow companies to adjust input taxes and prevent the buildup of unrecovered costs that are weakening the sector’s financial position.
The council is also calling for a FASTER-style automated refund system to replace the current manual process, which it says has left billions stuck with the Federal Board of Revenue.
Tax relief proposals
The proposal also highlights what it describes as disproportionate tax burdens across the sector. It recommends reducing the minimum tax on turnover from 0.50% to 0.25%, arguing that high-volume, low-margin businesses such as petroleum marketing cannot sustain current rates.
On liquefied natural gas, the OCAC notes that a 1% tax on import value results in an effective rate that exceeds the standard 29% corporate tax rate.
The council is also seeking an exemption from the 10% super tax, arguing that fixed margins mean the levy discourages investment in energy infrastructure.
Workforce and investment concerns
Beyond corporate taxation, the OCAC has raised concerns about talent retention. It has called for the restoration of the pre-Finance Act 2024 salary tax structure, saying higher tax slabs and a 9% surcharge are driving skilled professionals out of the regulated energy sector.
To support energy security, the proposal also recommends accelerated depreciation and tax credits for companies investing in fuel storage and logistics infrastructure.
Bottom line
The OCAC says that without sector-specific fiscal reforms, the financial viability of companies that form Pakistan’s energy supply chain will remain under pressure. As the government prepares the FY-2027 budget, the industry is warning that the current tax regime is no longer sustainable for the sector’s long-term stability.
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