(2) Sub-section 1 shall not apply to the profits and gains attributable to the production of petroleum including natural gas discovered before the 24th day of September, 1954; however sub-section (1) shall apply on profits and gains derived from Us gas field and the tax payable thereon from tax year 2017 and onwards."
Sources toldBusiness Recorder here on Thursday that the Ministry of Petroleum and Natural Resources has submitted a proposal to the FBR in this regard. The Economic Coordination Committee (ECC) of the Cabinet considered the summary dated November 28, 2016 regarding "Us Gas Field-Expiry of Mining Lease" and vied case No. ECC-144/24/2016 dated 13th December 2016 and, inter ail, approved to introduce enabling provisions in Pakistan Petroleum Exploration and Production Rules 2013 to grant a Development Production lease to Pakistan Petroleum Limited (PPL). For this purpose, case for suitable amendments in said rules is processed in consultation with Law & Justice Division.
Vied the aforesaid decision, the ECC also approved that PPL will enter into a new Gas Pricing Agreement (GPA) with the federal government to incorporate the revised wellhead gas pricing formula w.f. 1st June 2015. The new GPA, for Us D&PL subject to eligibility, shall also allow application of incentives given to existing leases under Tight, Marginal, Low BTU, Shale Gas Policies, Petroleum Policy 2012 and any other policy issued from time to time.
Paragraph 4.1(3) of the Petroleum Policy 2012 reads as under:
"Tax on income will be payable at the rate of 40% of profit or gains in accordance with the Fifth Schedule of the Income Tax Ordinance, 2001. Royalties will be treated as an expense for the purpose of determination of income tax liability." Us gas field is currently governed under the corporate tax provisions of the Income Tax Ordinance 2001. Although it is an oil and gas field, it does not fall under the Fifth Schedule to the Ordinance, as discoveries before September 24, 1954 are specifically excluded from the ambit of Fifth Schedule as per Section 100 of the Ordinance.
The PPL vied its letter dated January 12, 2017 has informed that since Us gas field does not fall under the Fifth Schedule to the Ordinance, this has resulted in an anomaly which needs to be addressed at the earliest.
While Ministry of Petroleum and Natural Resources is in the proceeding with regulatory process for award of development and production lease over Us field area to PPL, the company has suggested the anomaly can be addressed by amending the section 100 of Income Tax Ordinance 2001. The company in its aforesaid letter has also submitted proposed amendment sub-section (2) of section 100 of the Ordinance, to bring the Us gas field under the ambit of the Fifth Schedule, which is reproduced as under:
"(2) Subsection(1) shall not apply to the profits and gains attributable to the production of petroleum including natural gas discovered before the 24th day of September, 1954; however sub-section (1) shall apply on profits and gains derived from Us gas field and the tax payable thereon from tax year 2017 and onwards."
Taking this into account, Ministry of Petroleum and Natural Resources has requested the Federal Board of Revenue to consider the request of PPL and advise proper course of action, sources added.
Meanwhile, PPL has informed the Ministry of Petroleum and Natural Resources that it has been formally communicated to PPL that ECC, vied case No. ECC144/24/ 2016, has approved the proposal submitted by MPNR (which was prepared on the basis of MOA signed between MP&NR and government of Balochistan), in its meeting held on December 13, 2016.
While PPL is initiating requisite actions for implementation of the above decision, an anomaly in the taxation of Us gas field has been created which needs to be resolved.
Taxability of Us Gas Field: Us gas field is currently governed under the corporate tax provisions of the Income Tax Ordinance, 2001 (Ordinance). Although it is an oil and gas field, it does not fall under the Fifth Schedule to the Ordinance, as discoveries before September 24, 1954 are specifically excluded from the ambit of the Fifth Schedule as per section 100 of the Ordinance.
Pursuant to the ECC decision, it has been decided to convert the Us Mining Lease into a Development & Production Lease (D&PL) and extend the same under and pursuant to the Petroleum Exploration & Production Policy 2012 ("Policy") and the Pakistan Petroleum (Exploration & Production) Rules, 2013.
Paragraph 4.1 (3) of the Policy states that 'tax on income will be payable at the rate of 40% of profit or gains in accordance with the Fifth Schedule of the Income Tax Ordinance, 2001. Royalties will be treated as an expense for the purpose of determination of income tax liability.'
Us gas field does not fall under the Fifth Schedule to the Ordinance, this has resulted in an anomaly which needs to be addressed at the earliest. The above anomaly can be addressed by amending section 100 of the Income Tax Ordinance, 2001. Proposed amendment in the Income Tax Ordinance, 2001: In order to bring Us gas field under the ambit of the Fifth Schedule to the Ordinance, following amendment is proposed in sub-section (2) of section 100 of the Ordinance.
(2) Sub-section 1 shall not apply to the profits and gains attributable to the production of petroleum including natural gas discovered before the 24th day of September, 1954; however sub-section (1) shall apply on profits and gains derived from Us gas field and the tax payable thereon from tax year 2017 and onwards." The above proposed amendment has been designed to cater for the unique situation of the Us gas field. Therefore, the above proposed amendment will not have an effect on any other oil and gas field, PPL added.
Copyright Business Recorder, 2017