ISLAMABAD: The Federal Board of Revenue (FBR) has collected over Rs65 billion sales tax on the import of crude oil during July 2021 against the projected revenue of Rs38 billion following withdrawal of sales tax exemption on the import of the commodity.

Sources told Business Recorder here on Thursday that the collection of huge amounts of over and above Rs65 billion sales tax from crude oil was one of the main reasons for achievement of the indirect taxes target during the first month of current fiscal year (2021-22).

The adjustment of this amount collected in July 2021 is available in August 2021.

The FBR had informed the Senate Standing Committee on Finance that the 17 percent sales tax imposed on crude oil is an adjustable tax, which would help the FBR to have funds, despite the facility of sales tax adjustment.

During the review of the Finance Bill 2021-22, Senator Saleem Mandviwalla asked the FBR officials to explain the rationale behind the imposition of a standard rate of 17 percent sales tax on the import and supply of crude oil.

The imposition of 17 percent sales tax on crude oil is inflationary.

“If the tax is adjustable then why the FBR has imposed sales tax on crude oil,” he questioned.

Secretary Sales Tax (Budget) informed the committee that the crude oil was zero-rated for the last many years.

FBR informs Senate body: 17pc ST imposed on crude oil an adjustable tax

Now 17 percent sales tax has been imposed on crude oil. It is an adjustable tax, but the FBR would be able to have funds through imposition of this tax on crude oil, the FBR official added.

Senator Mandviwalla again questioned that if crude oil was zero-rated for the last 10 years then what is the logic behind this levy.

Why the FBR has not imposed a lower rate of sales tax on crude oil to check inflation?

The FBR official responded that the facility of sales tax adjustment is not available to the items subjected to reduced rate of sales tax.

The sales tax adjustment is only available to those items subjected to standard rate of 17 percent sales tax.

The collection of over Rs65 billion sales tax from crude oil engaged the claim of some tax experts who claimed that no extra revenue will come into the treasury.

Tax experts claimed that crude oil is refined by the local refineries to produce taxable petroleum products such as diesel, petrol, kerosene oil etc.

All these products are subject to sales tax and sales tax is paid at the specified rate at the time of sales of these products by the refineries and petroleum marketing companies.

If sales tax is collected on crude oil, it will have to be deducted from the sales tax payable on refined products.

ST on two petroleum products reduced

Therefore, the sales tax paid on refined products will be reduced by an amount equal to what has been collected from crude oil.

There will be only a timing difference of collection of tax and no net gain to the government.

As the crude oil is mostly imported, therefore, the tax collection will largely shift from the domestic stage to import stage and the government, which is collecting half of the total tax collection from the ports will end up further exacerbating the proportion between taxes collected from the domestic market and those collected at import stage.

This will also create problems for petroleum exploration companies who will now have to pay sales tax on the crude oil sold by them.

The zero-rating available to the supplies to petroleum and gas exploration companies is also proposed to be withdrawn, they added.

Copyright Business Recorder, 2021