TAXING NATO OIL SUPPLIES

SYED FAZL-E-HAIDER
(feedback@pgeconomist.com)

Jan 2 - 8, 20
12

Pakistan plans to withdraw all tax exemptions on oil exports for Nato forces in Afghanistan under new terms of cooperation with the United States fighting a war on Islamist extremists. Presently, the Nato forces in Afghanistan are facing disruptions in oil supplies after Pakistan blocked supply routes following a Nato's cross border airstrike on Pakistani posts near Afghanistan border that killed 24 Pakistani soldiers on November 26.

Pakistan has been a key conduit to move supplies to Nato and U.S. troops in Afghanistan. Petroleum products were exported to Afghanistan for Nato troops without the petroleum levy and general sales tax. The domestic consumers pay levy of Rs20-35 per liter.

Presently, hundreds of trucks loaded with containers and oil tankers are stranded at the country's Karachi and Bin Qasim ports, as these trucks are not allowed by Pakistani forces to cross the border in retaliation to November 26 incident. Islamabad has also decided to revisit the Afghan Transit trade deal to ensure that Nato supplies could not reach Afghanistan in the name of transit trade facility.

Taxing Nato oil supplies will open a new source of revenue generation and earning substantial foreign exchange for the cash-strapped country, which has been incurring an estimated loss of over Rs1.5 billion a year because of exemptions on oil exports to Afghanistan.

It will also help the country meet the shortage of various products, which are smuggled back into the country because of higher retail rates in the domestic market.

Each Nato tanker is believed to carry at least 50,000 liters of petrol for the troops in Afghanistan. The country is earning no penny in terms of taxes from the oil transport business, which involves four companies that engage 3000 tankers to transport oil to Afghanistan.

The withdrawal of exemptions is expected to save substantial waste of foreign exchange, revenue loss and resultant shortage of various products in the domestic market.

The country has been exporting petroleum products to US-led coalition forces in Afghanistan, exempted of all duties since 2002. The supplies, which were made through the US Defence Energy Supply Company, often created shortages in the domestic market.

The state-run Pakistan State Oil (PSO) reportedly told the petroleum ministry that exports volume grew to almost 100 per cent to Afghanistan last year that incurred a loss of at least Rs100 million a month due to export exemptions.

The petroleum ministry recently moved a summary to the economic coordination committee (ECC) of the cabinet seeking a permanent ban on export of locally-produced fuels including petrol and diesel. The summary was moved because of the shortage of petroleum products in the country.

The two different types of cargoes-which have been flowing through Pakistan to Afghanistan- include the Afghan Transit Trade-related commercial cargo and the non commercial or military cargo. Military supplies to Afghanistan include the US military cargo and Nato cargo.

The country is losing billions of rupees by exempting Nato oil tankers from any sales tax or excise duty and allowing them to go through Pakistani territory to reach Afghanistan under a transit trade agreement.

Pakistan, a key conduit to move supplies to Nato and U.S. troops in Afghanistan was mulling proposal to levy special tax on Nato trucks as compensation for use of road network even before the November 26 incident.

Numerous Pakistani highways have been adversely affected due to the transporting of heavy Nato supply trucks going to Afghanistan through Chaman in Balochistan and Torkhum in Khyber Pakhtunkhwa road networks.

Most of the 580 daily truckloads of supplies and fuel for the 142,000 Nato troops fighting the Afghan Taliban used to cross at Torkham before November 26. Torkham border crossing in the northwest is used for transporting supplies for Nato-led International Security Assistance Force (ISAF).

Last year, Pakistan closed the vital supply route for Nato forces in Afghanistan for 10 days following a cross-border air strike by Nato forces that killed two Pakistani soldiers.

Critics say that the government has so far been unable to check truckloads of Nato forces, which have been badly damaging the country's main highways and the government did not claim even for once the cost of the repair and maintenance work from Washington and Nato.

Indus Highway is worst affected, as cracks are developed after three to four months due to overloading of Nato trucks which have been frequently using the Indus Highway mainly from Karachi to Peshawar for a long time.

Pakistan has decided to revisit the conditions for Afghan Transit Trade (ATT) if and when a decision was taken to remove restriction on the supplies clamped in the aftermath of November 26 incident.

Under 1965 ATT agreement, the country has been facilitating foreign trade of land-locked Afghanistan. The ATT facility was grossly misused in many ways that resulted in massive smuggling of goods into Pakistan causing losses to local industry.

Some analysts believe that the U.S.-sponsored Afghanistan-Pakistan Transit Trade Agreement (APTTA), which was signed last year, seems to be in doldrums in view of the rising tensions between Islamabad and Washington after the November 26 incident.

APTTA was to be formally implemented on February 12, 2011 but it hit snags the day it was meant to become operational. The two countries could not make headway on the issues related to implementation of new transit pact.

The enforcement of the APTTA was postponed for an indefinite period, as Kabul refused to extend financial guarantees backed by Pakistani or international banks.

Pakistan sought cashable financial guarantees on Kabul-bound goods to curb smuggling, a condition for making the APTTA operational.

Pakistani authorities decided to impose a tax on all goods transiting into Afghanistan by air and road, while Afghanistan believes that new tax is a violation of the trade accord. APTTA also allows the Afghan transport companies to lift goods from the Wagah border and Karachi seaport.