ISLAMABAD, Aug 7: The government has notified conditions for import of machinery by exploration and production (E&P) companies at 5 per cent customs duty and under the temporary importation scheme without any duty.

The conditions were notified through a customs notification issued on Saturday, which would resolve the outstanding dispute between the petroleum industry, oil exploration companies and tax authorities.

It was expected that this notification would encourage huge investment in petroleum exploration areas and downstream industry.

Under clause 1, the government has exempted customs duty in excess of 5 per cent and the levy of the whole of sales tax on import and supply of machinery, equipment, materials, specialized vehicles or vessels, pick-ups (4x4), helicopters, aircraft, accessories, spares, chemicals and consumables not manufactured locally and imported by the E&P companies, their contractors, sub-contractors and service companies.

According to clause 2, machinery and equipment as were not manufactured locally, and imported by companies other than exploration and production companies will be imported at 5 per cent customs duty.

Under the clause 3, goods as mentioned in clauses (1), (2) above, as were manufactured locally, imported by E&P companies, their contractors, sub-contractors and service companies, other petroleum and public sector companies as was in excess of 10 per cent duty except X-mass trees, well head and integral components and parts thereof, which shall be exempted from so much of the customs duty as in excess of 15 per cent duty; imported by E&P companies their contractors, sub-contractors and service companies provided that goods imported by public sector companies shall be subject to provisions of notification SRO827 of 2001 except for projects wherein an investor or multinational company has a blocking vote.

Components and parts of well-head and X-mass tree if imported for their otherwise utilization will be allowed on payment of 10 per cent customs duty on the basis of certification of respective E&P company. However, items not manufactured locally shall remain subject to 5 per cent customs duty. All items falling under this serial No 3 shall also be exempt from whole of the sales tax, if these are plants, machinery, equipment and proprietary spares of parent equipment not manufactured locally.

According to conditions, for availing duty exemption under the clauses 1 and 2, only such goods shall be entitled to theexemption under this notification as have been certified, for clause (1) by E&P company and for clause (2) by a company other than E&P company, for its own use or its contractors, sub- contractors and service companies for its projects of oil and gas exploration and production, refinery, oil and gas pipeline, liquefied petroleum gas (LPG), compressed natural gas (CNG), petroleum terminals, energy conservation, environment and safety controls; the exemption will be available to E&P companies shall be admissible only to such E&P companies, who hold permits or licences, or leases or concession production sharing agreement and who enter into supplemental agreements with government of Pakistan.

The importer shall maintain an account of all imports along with the relevant records as prescribed by the customs rules 2001, and sales tax act 1990; if a dispute arises whether any item is entitled to exemption under this notification, the item will be immediately released by the customs department against a corporate guarantee valid for a period of nine months, extendible by the collector concerned of customs on time to time basis. A certificate from the relevant regulatory authority that the item is covered under this notification shall be given due consideration by the customs department towards finally resolving the dispute. Disputes regarding the local manufacturing only shall be resolved through the engineering development board.

If an emergency condition occurs in connection with operations by a petroleum sector company, which seriously endangers life or property of the operations of the project, the relevant regulatory authority shall declare an emergency and the operating company shall be allowed to import any item or items considered necessary by the said company to deal with the emergency under intimation to the regulatory authority without fulfilling such formalities as are likely to cause delay.

The items, imported at concessionary rates, which become surplus, scrap, junk, obsolete or otherwise shall be disposed of in the following manner - in the event an item other than vehicles, is sold to another company in the petroleum sector no import duties shall be levied or charged. Otherwise, it shall be sold through a public tender and duties shall be recovered at the rate of 10 per cent of the sale proceeds; for vehicles there would be a minimum retention period of 5 years after which the vehicles might be disposed of in the manner provided a) above except that the full rate of import duties, net of any import duties already paid, shall be charged subject to an adjustment of depreciation at the rate of 2 per cent per month up to a maximum of 24 months.

The vehicles could be surrendered at any time to the government of Pakistan without payment of any import duties under intimation to the CBR and items imported on payment of 5 per cent or above, which have been rendered scrap, with change in their physical status, composition or condition and PCT classification, will be dealt with as scrap and shall be chargeable to customs duties and sales tax accordingly at standard rates.

All petroleum sector companies, corporations and organization including their contractors and sub-contractors and service companies shall be entitled to import machinery, equipment, helicopters, aircraft, drilling bits, drilling and seismic (on shore or off shore) vessels, drilling rigs, speciallized vehicles which fall under PCT heading 87.05 including accessories and spares that are part of such vehicles and vessels for the purpose of construction, erection, exploration and production of petroleum projects on an import cum export basis without payment of duties and taxes against a corporate guarantee valid for a period of two years equal to the value of import duties and taxes exempted extendible by the collector of customs. Should the goods etc not be exported on the expiry of the project or transferred with the approval of the collector to another petroleum project or the period of stay has been extended by the collector, then company or their contractors or sub-contractors shall be liable to pay duties and taxes chargeable at the time of import.

Each importer or E&P company shall develop a software within a period of one year from the date of issuance of the notification and shall establish an online connection with the customs authorities for regulating the imports and any item imported under this notification might be exported for replacement or otherwise, repair, modification or renovation and might be re-imported by paying concessionary duty and taxes only as per the actual cost of repair, renovation or modification of the respective items.

The whole of customs duty will be exempted on raw materials and components, as were not manufactured locally and imported for use in the manufacturer of goods specified in clauses (1) and (2) to be supplied to the petroleum sector companies as specified - the manufacturer has suitable in-house facilities and registration with the sales tax department for manufacture of such goods or the importer-cum-manufacturer is in possession of firm contract for the manufacture of such goods with any other manufacturer having suitable in-house facilities and registered with sales tax department for the manufacture of such goods; the manufacturer-cum-importer shall furnish to the collector of customs and collector of sales tax the list of such goods that he is manufacturing or intends to manufacture along with the details of raw materials and components required for the manufacture of each item and the total annual requirement of all such inputs.

The input output ratios of items to be manufactured and total annual requirement of raw materials and components is determined by directorate of input output co-efficient organization, or any other person, association or agency authorized by the CBR and a certificate of annual requirement issued by such designated or authorized person to the relevant collector under intimation to CBR; the clearance of inputs shall be allowed through a customs collectorate nearest to the manufacturing unit; the manufacturer-cum-importers shall at the time of import of raw materials and components make a written declaration on the goods declaration to the effect that the raw materials and components have been imported for manufacturing of goods to be supplied to the petroleum sector as specified in condition with reference to clauses 1, 2.