Oil, Natural Gas and Other Mineral Deposits Chapter- 26
expenditure is incurred is given up before the commencement of commercial production, the
expenditure allocable to a surrendered area or to the drilling of a dry-hole shall be treated as
lost at the time of the surrender of the area or the completion of the dry-hole, as the case may
be.
(3) Where the agreement provides that any portion of expenditure treated as lost (referred to as
the “said loss”) shall be treated in any of the following ways:
(a) The said loss shall be set off against any income (other than income from dividend)
chargeable under any head of that year and where the said loss cannot be fully set off
then the unadjusted loss can be carried forward up to the maximum of 6 years.
(b) The said loss in any year shall be set off against the income of such undertaking of the
tax year in which commercial production has commenced and where the loss cannot be
wholly set off against the income of such undertaking of that year, the portion not set off
against the income, if any, of such undertaking of that year, and if it cannot be wholly so
set off the amount of loss not so set off shall be carried forward for more than 10 years.
(4) After the commencement of commercial production, all the expenditure incurred prior thereto
and not [treated as] lost under sub-rule (2) and not represented by physical assets in use at the
time the commercial production shall be allowed as a deduction, so, however, that the portion
of such deduction to be so allowed in any year shall be such amount not exceeding 10% of the
aggregate amount deductible in respect of onshore areas, and not exceeding 25% for offshore
areas, as may be selected by taxpayer.
(4A) Notwithstanding anything contained in this Schedule, a person, for tax year 2012 and onward,
may opt to pay tax at the rate of 40% of the profits and gains, net of royalty, derived by a
petroleum exploration and production undertaking:
Provided that this option shall be available subject to withdrawal of appeals, references and
petitions on the issue of tax rate pending before any appellate forum:
Provided further that the outstanding tax liability created under this Ordinance up to tax year
2011 is paid by the 30th June, 2012:
Provided also that this option is available only for one time and shall be irrevocable.
(4AB) The provisions of section 4C shall apply to the taxpayers under this schedule and shall be
taxed at the rates specified in Division IIB of Part I of the First Schedule from tax year 2022
onwards.
(5) Any expenditure, including a royalty paid to the Federal Government by an onshore petroleum
exploration and production undertaking on, or after, the 1st July 2001 (not being in the nature of
capital expenditure or personal expenses of the taxpayer) laid out or expended after the
commencement of commercial production wholly and exclusively for the purpose of the
business of production and exploration of petroleum carried on by such undertaking shall be
allowed as a deduction, provided that –
(a) No deduction shall be allowed in respect of such expenditure incurred in the acquisition of
depreciable assets to which section 22 applies or in the acquisition of an intangible to
which section 24 applies;
(b) Deductions u/ss 22, 23 and 24 shall be admissible in respect a assets referred to in
clause (a);
(c) A depreciation deduction shall also be allowed u/s 22 in respect of such expenditure
incurred on the acquisition of the physical assets acquired before the commencement of
commercial production and were being used such undertaking on and after that date, as if
such assets had been acquired at the time of the commencement of commercial
production at their original cost, by the amount of depreciation deduction, if any,
previously allowed to be deducted under this Ordinance.
(6) If, in any year, the deduction allowed Part IV of Chapter III and sub-rules (3) and (4) exceed the
gross receipts from the sale of petroleum produced in Pakistan, such excess shall be set off
against other income (not being dividends) and carried forward in the manner subject to the