Fuel consumers bear Rs1.274 trillion in POL levy as govt keeps petroleum products outside sales tax net

The government’s decision to exempt petroleum products from sales tax does not remove the tax burden on consumers, as the same products remain subject to petroleum development levy, the Federal Board of Revenue (FBR) has said.

In its Tax Expenditure Report 2026, the FBR treated petroleum products differently from other sales tax exemptions because levy collections continue despite the sales tax waiver.

The report said the petroleum development levy portion was removed from the calculation of sales tax expenditure to avoid counting the same burden as a tax concession.

After making that adjustment, the estimated cost of sales tax exemptions and concessions stood at Rs1.27398 trillion in FY2024-25.

Health and medical supplies, fertiliser and agriculture, food, manufacturing, energy, stationery, Gwadar and export processing zones were among the main sectors benefiting from sales tax relief.

Separately, the report estimated that income tax exemptions granted across 11 major sectors reduced annual revenue by Rs580 billion.

The largest recipients of income tax concessions included social security and pensions, energy and mining, financial services, health and pharmaceuticals, education, tribal areas, and donations and charities.