According to PSO, the country was losing over Rs1.5 billion because of exemptions on oil exports to Afghanistan. It alleged that some companies were selling products in Khyber Pakhtunkhwa at up to Rs5 per litre lower than the officially announced rate. - File photo

ISLAMABAD: As Nato forces in Afghanistan continue to face disruptions in oil supplies owing to tense Pak-US relations, the Economic Coordination Committee of the cabinet is expected to withdraw later this week all tax and duty exemptions on export of oil products to Afghanistan.

Informed sources told Dawn that almost all ministries concerned had supported a petroleum ministry proposal to withdraw all tax exemptions on oil exports to Afghanistan in view of substantial waste of foreign exchange, revenue loss and resultant shortage of various products in the domestic market.

“Retail product prices in the domestic market should be the export prices,” said a senior government official, adding the domestic consumers should not be treated unfairly for the benefit of consumers elsewhere, particularly in Afghanistan. He said the ministry had proposed to withdraw petroleum levy and general sales tax exemptions on oil exports for Nato forces in Afghanistan.

Currently, four major products — petrol, high-speed diesel and two types of jet fuel — are being exported to Afghanistan for the US-led coalition forces and Afghan consumers at almost 35 per cent lower than the rates in Pakistan. Oil exports do not attract petroleum levy and general sales tax that domestic consumers pay at a rate of Rs20-35 per litre.

Pakistan exports about one million tons of jet fuel, 35,000 tons of petrol and about 150,000 tons of high-speed diesel to Nato forces in Afghanistan every year. Smaller quantities exported to Afghanistan ultimately reach Central Asian States.

But most of the exports are smuggled back into Khyber Pakhtunkhwa because of higher retail rates in the domestic market. Some leading Pakistani oil marketing companies are also using the export facility for dumping their products inside Pakistan and claim duty drawback and refunds available to exports, depriving the exchequer of Rs6-14 per litre of petroleum levy and 16 per cent GST.

At first, the petroleum ministry, on the request of the state-run Pakistan State Oil, proposed a complete ban on export of diesel and petrol to Afghanistan, but the move was opposed by some stakeholders to maintain Pakistan's market share in Afghanistan to and meet certain “international obligations”. It was then decided to allow exports provided consumers in Afghanistan — whether Nato or local Afghans — paid the full price, including taxes, because they also used Islamabad's logistic infrastructure.

Pakistan started supplying petroleum products to US-led coalition forces in Afghanistan in 2002, initially through state-run National Logistics Cell and then the private tankers. At times, these supplies created shortages in the domestic market.

Oil companies reported export of about 800,000 tons of different products to Afghanistan during 2010-11 — up from about 350,000 tons in 2007 — raising suspicions that large quantities are being smuggled back into the country.

According to PSO, the country was losing over Rs1.5 billion because of exemptions on oil exports to Afghanistan. It alleged that some companies were selling products in Khyber Pakhtunkhwa at up to Rs5 per litre lower than the officially announced rate.

“There has been an alarming growth of exports volume of almost 100 per cent to Afghanistan last year and the government is estimated to have lost at least Rs100 million a month due to export exemptions,” the state-run company is reported to have told the petroleum ministry.