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LAHORE: The Oil Marketing Association of Pakistan (OMAP) apprehends severe fuel crisis if the government did not address the issues like reluctance of banks to open Letter of Credit of oil marketing companies.

A delegation of the Oil Marketing Association of Pakistan will call on Federal Minister for Energy Hammad Azhar on Wednesday (today) to discuss the long-standing issues like annual increase in OMC margin, license renewals and extension issues and other issues related to turn over or minimum tax.

In a letter written by Chairman OMAP Tariq Wazir Ali to the minister for energy, the association requested the concerned minister for urgent meeting to discuss their issues due to which the banks are reluctant to open the LC’s. In case of status quo, the association feared that country may face a severe fuel shortage.

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According to the letter, the issue relating to increase of turn over or minimum tax rate applicable to oil marketing companies from 0.5 percent to 0.75 percent in 2019 had a detrimental effect on profit and cash flows of OMCs. The association demands that the rate of turnover tax (currently at 0.75 percent which translates to approx Rs 0.80/liter or 27 percent of OMC margin) should be rationalized/aligned to the underlying profitability of the OMCs and should be linked to the gross margins of OMCs rather than the revenues.

The letter states that the current margin of Rs 2.97/liter was implemented on 1st April 2021 after a delay of nine months. The implemented increase nowhere represents a fair compensation for the increase experienced by the industry. The current OMC margin review is still pending since 1st July 2021. It also mentioned that as per the ECC decision, the independent study by Pakistan Institute of Development Economics should have been completed before 2019. However, the study faced numerous delays.

The letter further adds that due to the undue delay in the OMCs license renewal/extension issues have a drastic and adverse effect on day-to-day working of OMCs. The cost of doing business is a pre-dominant factor which is a great hindrance to new local and foreign investment.

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