Petroleum Division proposes cutting levy target to Rs1 trillion, reducing fuel levy to Rs50/litre

In its budget proposals submitted to the Ministry of Finance, the Petroleum Division has opposed any increase in petroleum levy targets for the next fiscal year and proposed reducing the annual collection goal to Rs1 trillion while cutting the levy on petrol and diesel to Rs50 per litre amid elevated global oil prices, The Express Tribune reported. 

According to officials, Petroleum Minister Ali Pervaiz Malik recently wrote to Finance Minister Muhammad Aurangzeb, stating that the United States-Iran conflict and rising global energy prices had made it necessary to reduce reliance on petroleum levies to protect vulnerable segments of society.

The Petroleum Division proposed reducing the levy collection target to Rs1 trillion for the next fiscal year, which is Rs727 billion lower than the IMF’s projected target and Rs468 billion below the original target for the current fiscal year.

As an alternative measure, the division recommended reducing the petroleum levy on petrol and diesel to Rs50 per litre, compared to the Rs80 per litre level agreed with the IMF.

Officials said the government was currently charging Rs118 per litre as petroleum levy on petrol.

The division suggested that levy rates should only be increased above Rs50 per litre if global oil prices fall below $60 per barrel.

According to the proposals, diesel prices have increased by 48% and petrol prices by nearly 56% since the regional conflict began, as the government adjusted domestic rates to recover international prices and collect higher taxes.

The Petroleum Division argued that reducing levy targets and rates was necessary to ease pressure on consumers and support economic stability.

Data shared by officials showed that the estimated levy collection between July 2022 and June 2026 stands at Rs4.3 trillion.

The division also urged the government to reduce sales tax on LPG from 18% to 10%, arguing that the fuel is widely used by low-income households. It recommended that the petroleum levy targets on LPG should not be increased in the next budget.

The Petroleum Division further proposed resolving legacy financial issues faced by Pakistan State Oil through budgetary allocations and ending cross-subsidies on gas prices.

According to the proposals, oil and gas companies are facing heavy tax burdens, delayed refunds and tax demands that are affecting the financial viability of the sector.

The division requested the Federal Board of Revenue to clear Rs55 billion in pending tax refunds owed to Sui Northern Gas Pipelines Limited.

Officials also said the Sui gas companies were facing Rs182 billion in tax demands related to the swapping of imported and local gas within the Sui Southern Gas Company Limited system.

The Petroleum Division recommended amendments to sales tax laws in the upcoming budget to address the issue.

It also asked the finance ministry to allocate Rs130 billion for gas subsidies in FY2026-27 instead of passing the burden to residential consumers through higher tariffs.

In addition, the division requested full budgetary coverage for the financing costs incurred by Pakistan State Oil on petroleum imports, including exchange rate losses.

Officials said PSO was seeking clearance of Rs61 billion in arrears linked to import-related loans.

The division also proposed abolishing the 10% super tax imposed on oil and gas sector companies, arguing that it was negatively affecting profitability and investment capacity.