ENERGY

Excessive taxation and related financial restrictions on oil and gas companies is in utter disregard of prevailing ground realities and has forced major oil and gas entities to either completely wind up or drastically reduce their operations, leading to downsizing and other cost-cutting measures.

The accounts of oil and gas companies are being frozen on minor pretexts and even where exemptions are available from taxes. One official on condition of anonymity said that recently one company had to face the same situation where FBR raised a tax demand on foreign employees of the company, even though they are clearly exempted under various domestic laws, and attached company accounts were frozen for forced recovery. Another company official said that their company accounts were attached and were not released for more than 20 days even after higher appellate tribunal ruled in their favour.

The situation poses a serious challenge to the federal government that has long claimed to put the country’s affairs in order by introducing good governance including restructuring the Federal Board of Revenue (FBR) to streamline tax practices. This is vital to broaden the tax base, improve the revenues and facilitate the taxpayers. However, these claims appear far from reality. The FBR’s alleged highhandedness is adding to the plight of these companies, according to industry sources.

Resultantly, the oil and gas companies have been facing massive problems from FBR authorities that are reportedly pressurizing the companies to accede to their unrealistic demands. Cases have surfaced in the past whereby tax officials were found demanding huge ‘financial favours’ from different petroleum enterprises and threatened them of serious consequences if their demands were not met. The reports about victimization of certain business groups, which refused to ‘cooperate’ with FBR officials, through false inquiries and related probes, have often made headlines in the national media.

After the arrival of the incumbent government, cases have emerged whereby show cause notices and orders were issued against the petroleum companies without providing them any opportunity of being heard. Moreover, it is also learnt that energy companies had to face common issues like undue tax demands by tax officers who acted in violation of the orders of the higher appellate forums, and incompetent officers handling critical tax-related matters, threatening top ranking officials of petroleum companies with prosecution as well as other forms of intimidation.

Reportedly, the constant pressure from tax authorities is not only undermining operational capabilities of the companies but also poses reputational risk towards suppliers and persons engaged with it by not being able to pay off the liabilities in time due to frozen company accounts. Furthermore, frozen bank accounts of these companies have jeopardized the processing of payroll, i.e. the payment of salaries and benefits to the employees who are finding it extremely hard to support their families due to delays in salaries’ payment.

The affected companies have appealed to the Prime Minister Imran Khan to take notice of the FBR’s highhandedness which is discouraging investment in the energy sector and is tantamount to harassing exploration companies for personal gains of some officials. It merits a mention here that the affected companies include those exploration entities that are rated as major stakeholders in Pakistan’s energy sector and are making a sizeable contribution to the Pakistan economy and energy sector in particular, a fact that has been acknowledged at the highest government level.