"The tax on turnover has been halved for oil and gas companies, refineries and other multinational companies," said an executive of the Federal Board of Revenue, an Islamabad-based tax collecting and decision-making body of the government.
The government had in the federal budget for the year ending June 30, 2011 raised the turnover tax on oil marketing companies, refineries, gas units to 1% from 0.5% effective July 1, 2010.
However, the companies had expressed reservations and had repeatedly asked the government to reverse this decision as they could foresee the falling profits of their companies being trimmed further.
The profit of Pakistan State Oil, the country's biggest oil supplier, fell to Pakistan Rupees 809 million ($9.4 million) in the quarter ended September 30, 2010, from Rupees 1.9 billion a year ago, while Shell Pakistan posted a loss of Rupees 732 million compared with a Rupees 690 million profit
for the same period last year.
Pakistan's financial year runs from July to June.
Pakistan State Oil, or PSO, is likely to be the major beneficiary of the reversal in the turnover tax rate, said Syed Atif Zafar, oil analyst at Karachi-brokerage house JS Global Securities.
Both PSO and Shell are expected to get reversal of around Rupees 2.8 billion and Rupees 1.5 billion in upcoming quarter as they showed these amounts as tax expense in their balance sheet, he said.
The oil marketing companies, refineries, gas and exploration companies are facing liquidity problems, especially PSO due to non-payment of bills for oil sold to power companies, said Farhan Mehmood, head of research at Karachi-based brokerage house Topline Securities.
In all, state-run companies and other units owe around Rupees 153.5 billion to PSO, while the oil giant has to pay around Rupees 131.4 billion to refiners such as the Pak-Arab Refinery.
Huge outstanding bills increase the financing cost of the companies as they have to borrow more from banks to pay their for import commitments, he said.
The reduction in tax will help improve the financial health of the companies by reducing their cost of financing.
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