Corporate Tax

“OMCs pay considerably greater than corporate tax charges”

ISLAMABAD: Oil marketing companies (OMCs) are paying significantly more than the 29 percent corporate tax rate in the country due to sales tax irregularities, an independent think tank said on Tuesday.

In a report, the Islamabad Policy Institute (IPI) said sales tax effectively negates the provisions of Section 57 of the 2001 Income Tax Ordinance and adds a significant financial burden to the long-term viability of the regulated petroleum sector.

“Although oil traders, petroleum agents and traders have higher profit margins than OMCs, petroleum traders who operate gasoline pumps are exempt from this tax and petroleum agents enjoy a low rate of 0.25 percent,” IPI said in a report. “This is discriminatory, arbitrary and absurd, since in a similar sector those with high profit margins pay no / lower percentage of sales tax while OMCs with lower profit margins suffer higher rates.”

Citing examples from other sectors such as distributors, sub-dealers, retailers and wholesalers of fast-moving consumer goods, sugar, cement and edible oil who were granted a reduced rate of 0.25 percent under Section (24D) of Part II of the Second Schedule in the Income Tax Ordinance of In 2001, the IPI states that gasoline and HSD also fall under the definition of fast-moving consumer goods and must be treated equally with regard to the sales tax rate.

The IPI proposed a review of the sales tax on the oil marketing companies in the budget of the coming federal government for the 2010/22 financial year. “The tax affects the viability of the downstream oil industry. The tax is discriminatory, arbitrary and against the spirit of tax laws. “

Ilyas Fazil, who wrote the report, said OMCs are already operating in a very challenging fiscal environment. Sales tax of 0.75 percent is currently levied on the OMCs as a minimum tax in accordance with Section 113 of the Income Tax Act.

Sales tax is levied on the cumulative price per liter of petrol and HSD, which, in addition to distribution costs, also includes taxes such as oil levy and sales tax. The turnover / turnover of the OMCs is only a fixed margin. For the purposes of the minimum tax u / s 113 of the regulation, only a fixed margin needs to be taken into account, he said.

The fixed margin for OMCs for gasoline and HSD in Rs2.97 versus retail prices of Rs108.56 for gasoline and Rs110.76 for HSD. The 0.75 percent of sales rate is too high as the OMCs are required to sell the goods at a fixed margin that is less than 3 percent of sales and whose margin is less than 3 percent of sales (i.e. gross profit of less than 3 percent of sales) sales) The introduction of a minimum tax of 0.75 percent of sales is tough and exorbitant. The aim of the minimum tax is to require companies that have suffered losses or made a small profit during a tax year to contribute a reasonable amount in relation to their respective sales to the treasury that year – something they against the normal tax liability could adjust the following years.

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