The government has abolished a 10-year tax exemption for existing oil refineries, as reported by a national daily.
The petroleum division has revised its policy regarding incentives to the oil refineries that are currently operating in the country. It has removed a 10-year tax holiday and reduced the government’s contribution to the funding of the upgrading of such refineries to 30 percent from 40 percent.
This followed a meeting of the Cabinet Committee on Energy in which officials had approved a 20-year tax exemption for new, modern oil refineries but had reduced incentives for the existing refineries.
The government contribution that was offered to the existing refineries has to be generated through a 10 percent customs duty on petrol and diesel.
The policy entails that “There shall be a tariff protection in the form of 10pc import duty on Motor Gasoline and Diesel of all grades as well as imports of any other white product used for fuel for any kind of motor or engine, effective from January 1, 2022 to December 31, 2027”.
Any incremental revenue generated through this updated tariff structure will be transferred to a special reserve account. The account will be used exclusively to finance upgrades and expansions to existing refineries, and will not be used for corporate purposes such as the funding of losses or the distribution of dividends.
The refinery will have to finalize its upgrade plan with the government by 31 December 2021 and submit a proposed timeline and other relevant information about the project to the petroleum division.
The revised policy offers no guarantee of the rate of return for the existing refineries provided by the government. However, they will be allowed to open foreign currency accounts and may retain part of export proceeds in a foreign currency to fulfill operational needs.