The Petroleum Division has expressed strong reservations over the government’s decision to impose an additional Rs10 per litre petroleum levy (PL) on motor spirit (MS) and high-speed diesel (HSD), increasing the levy to Rs70 per litre, BR reported.
This decision, aimed at generating an additional Rs58.6 billion to reduce electricity tariffs by Rs1.71 per unit, is being criticised as an undue burden on the petroleum sector.
The Petroleum Division formally communicated its concerns to the Power Division on April 7, 2025, in response to a summary submitted to the Economic Coordination Committee (ECC) under the title “Tariff Rationalization for Power Sector.”
Prime Minister Shehbaz Sharif had earlier announced reductions in electricity tariffs—Rs7.41 per unit for domestic consumers and Rs7.69 per unit for industrial users. However, the sustainability of these reductions remains uncertain, as they are dependent on international energy prices and the availability of hydropower in the coming months.
The increase in the petroleum levy came after a drop in international oil prices, with the levy raised from Rs60 to Rs70 per litre on March 16, 2025. The Petroleum Division warned that if petroleum prices rise again during the remainder of the fiscal year, the government may be forced to either raise retail fuel prices or reduce the petroleum levy to protect consumers. Such adjustments could result in PL collections falling short of the Rs58.6 billion target.
The Finance Division has set a target of Rs1.281 trillion for petroleum levy revenue in FY 2024–25. However, as of February 2025, only Rs744 billion—58 percent of the annual target—had been collected, making it challenging to meet the full goal.
Additionally, the Petroleum Division pointed out the financial difficulties faced by the oil sector. In recent years, sales tax on MS and HSD was reduced to zero to prevent the accumulation of input tax for refineries and oil marketing companies (OMCs). This move has led to estimated losses of Rs35 billion in the current fiscal year.
The Petroleum Division emphasized the need for immediate actions to ensure the sustainability of refineries and OMCs, particularly to support planned upgrades. It also noted that a proposal to introduce a three percent sales tax was dropped due to IMF recommendations to apply the standard 18 percent rate, which would increase MS/HSD prices by Rs47 per litre. Furthermore, the IMF has suggested a carbon levy of Rs5 per litre, which would further push fuel prices higher.
In its communication, the Petroleum Division made it clear that while it remains neutral regarding the Power Division’s request for additional funds, it stressed the importance of considering the potential impact on the already struggling petroleum sector. The Division urged that no additional burdens be placed on the sector amid ongoing financial challenges.
