The Petroleum Division has asked the country’s six major oil refineries to submit details of deemed duty collected on petroleum products.
In a letter dated September 6, the department asked the Managing Directors of the facilities to provide a “yearly break up of DD collected by each refinery and its utilization since its inception” within two days. The facilities must also submit third-party audit reports of deemed duty (DD) collected.
The reports will then be forwarded to the Cabinet Committee on Energy for further assessment.
The refineries include Pak Arab Refinery Ltd., National Refinery Ltd., Pakistan Refinery Ltd., Byco, Attock Refinery Ltd., and Enar Petroleum Refining Facility.
During a meeting of the Cabinet Committee on Transport & Logistics last week, the committee directed the Petroleum Division to undertake this measure to address concerns about the utilization of deemed duty collected by refineries.
In 2002, the government fixed deemed duty on diesel and petrol at about 10 percent, as well as 6 percent on other products. This was to ensure price parity with imported products that had 10 percent customs duty, and replaced the prior system of a guaranteed 10 percent return on refining.
The deemed duty on all petroleum products was then abolished in FY 2007, except for on diesel, which was cut to 7.5 percent.
The deemed duty on petroleum products collected by refineries is meant to be used to fund infrastructure upgrades.
However, in 2009, a judicial commission said that refineries had earned more than Rs. 80 billion through deemed duty, but had not spent the revenue in improving infrastructure. It recommended that the government scrap the duty altogether.
Since then, oil refineries have faced a number of allegations regarding the inefficient use of tariff revenue.
Last week, the Petroleum Division said that refineries collected Rs. 200 billion in tariff revenue since FY 2007 and invested the same amount in new projects such as infrastructure upgrades.
The refineries have also refuted criticism and argued that they have spent deemed duty collection revenue on projects like hydro-desulphation plants and isomerization.