Increase in petroleum levy in the offing
Listen to article
The government has decided to make a massive increase in petroleum levy up to Rs90 per litre on the sale of oil products, which will be collected from consumers.
"The federal government, in exercise of powers conferred under Section 8 read with Section 3(1) of the Petroleum Products (Petroleum Levy) Ordinance, 1961, authorises the Petroleum and Finance Divisions to make adjustments – with the approval of the prime minister — in the rate of petroleum levy on petroleum products, up to a maximum of Rs90 per litre, to ensure timely fortnightly revisions in petroleum prices," the Economic Coordination Committee (ECC) said in a recent meeting.
At present, the consumers are paying Rs78 per litre in petroleum levy on petrol and Rs77 per litre on diesel.
During previous decisions relating to revision in petroleum prices, the federal government had decided to redirect the collection of petroleum levy to subsidise electricity consumers and finance road and canal projects in Balochistan.
The decision was taken while discussing matters pertaining to sales tax on refineries and oil marketing companies (OMCs).
The Petroleum Division briefed the forum that petroleum products (Mogas, diesel, kerosene oil and light diesel oil) had been classified as "exempted" under the Finance Act 2024. As a result, the refineries and OMCs incurred the cost of input sales tax (Rs34 billion for financial year 2024-25), which could not be recovered through product prices, which are regulated and fixed by the Oil and Gas Regulatory Authority (Ogra).
A proposal to levy 3-5% sales tax on motor spirit (MS or petrol) and high-speed diesel (HSD) was developed in consultation with the oil industry, Finance Division and Federal Board of Revenue, but it could not be implemented due to the lack of agreement with the International Monetary Fund (IMF) on reducing the tax rate. It is worth noting that the standard general sales tax (GST) of 18% on MS and HSD will result in a price rise of around Rs45 per litre, which is not desirable. Any changes to the tax rate will require prior consultation with the IMF as well as approval of parliament.
Besides the sales tax issue, the OMCs and petroleum dealers requested an increase in their margins on MS and HSD. In that regard, Ogra recommended an increase of Rs1.13 and Rs1.40 per litre in margins of OMCs and dealers, respectively, to ensure the sustainability of oil supply chain. Ogra's recommendations were reviewed and certain amendments were suggested in a summary.
To partially address the financial issues faced by refineries, OMCs and dealers, the Petroleum Division proposed that since petroleum products (Mogas, diesel, kerosene oil and LDO) were exempt from sales tax during the current financial year, the unadjusted sales tax of refineries and OMCs (estimated at Rs34 billion) from July 2024 to June 2025 may be compensated through the inland freight equalisation margin (IFEM). The amount may be recovered over 12 months.
It said that for FY26, a 3-5% sales tax on the above-mentioned fuel products may be imposed through the Finance Act. However, if the products remain exempt from sales tax, the unadjusted tax may again be compensated through the IFEM as a fallback option to keep the oil supply chain sustainable.
Ogra will develop a mechanism for adjusting GST claims and ensure effective utilisation of digitisation costs, along with implementation timelines, within one month of approval. The full cost of digitisation will be borne by the OMCs across the supply chain, including the retail outlets. The Petroleum Division briefed the ECC that based on those proposals the indicative impact on MS and HSD prices would be Rs1.87 per litre for sales tax adjustment. It was also proposed to increase margins for OMCs by Rs1.13 per litre and for dealers by Rs1.12 per litre.
The ECC considered a summary titled "Settlement of financial issues of refineries and OMCs" and agreed that the unadjusted FY25 sales tax of OMCs and refineries may be compensated from May 16, 2025 through the IFEM (which was estimated at Rs34 billion and would be verified by Ogra). The amount will be recovered until the end of FY26.
The proposal for the imposition of 3-5% GST on petroleum products shall be considered along with other tax-related proposals for inclusion in the upcoming Finance Bill.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Recorder
25 minutes ago
- Business Recorder
Positive momentum at PSX, KSE-100 gains 700 points
A day after shedding over 800 points, bullish momentum returned to the Pakistan Stock Exchange (PSX) with the benchmark KSE-100 Index gaining over 700 points during the opening hours of trading on Tuesday. At 10:40am, the benchmark index was hovering at 119,578.51, an increase of 700.71 points or 0.59%. Buying was observed in key sectors including cement, commercial banks, oil and gas exploration companies, OMCs and power generation. Index-heavy stocks including HUBCO, SNGPL, SSGC, OGDC, PPL, MCB, MEBL and UBL traded in the green. In a key development, Prime Minister Shehbaz Sharif said on Monday that talks with the International Monetary Fund (IMF) over the forthcoming federal budget had been successful, paving the way for a new phase of economic growth. The premier, while talking to a select group of journalists, said the government had stabilised the economy and would now shift its focus toward sustained development. On Monday, PSX witnessed a volatile session on the first trading day of the week, as early bullish momentum was wiped out by heavy late-session selling, finally the benchmark index closed into negative territory. The benchmark KSE-100 index shed 813.29 points or 0.68% to close at 118,878 points. Internationally, Asian shares edged cautiously higher on Tuesday while the dollar fell to a six-week low as erratic US trade policies clouded over markets and investors turned defensive ahead of key developments later in the week. US President Donald Trump and Chinese leader Xi Jinping will likely speak this week, White House press secretary Karoline Leavitt said on Monday, days after Trump accused China of violating an agreement to roll back tariffs and trade restrictions. The call between the two leaders will be closely watched by markets to see if the tariff-induced blow to global stocks and the dollar this year could get some reprieve or ratchet up, as trade tensions between the world's two largest economies simmer. Data on Monday showed US manufacturing contracted for a third straight month in May and suppliers took the longest time in nearly three years to deliver inputs amid tariffs. The gloomy global trade situation left US futures falling early in the Asian session, failing to sustain the slight gains made during the cash session on Wall Street overnight. Nasdaq futures and S&P 500 futures were both down 0.2% each. In Europe, EUROSTOXX 50 futures advanced 0.28% and FTSE futures added 0.15%. MSCI's broadest index of Asia-Pacific shares outside Japan reversed early losses to last trade 0.6% higher, while Japan's Nikkei rose 0.66%.
Business Recorder
4 hours ago
- Business Recorder
EPA bans substandard fuel
LAHORE: The Environment Protection Authority (EPA) has imposed a province-wide ban on the use of substandard fuel in motor vehicles, declaring that no vehicle on Punjab's roads may operate using petrol or high-speed diesel that does not meet the specifications approved by the Oil and Gas Regulatory Authority (OGRA). In a notification issued by EPA Director General Dr Imran Hamid Sheikh, it was stated that violations of this order will be punishable under Section 17 of the Punjab Environmental Protection Act, 1997. An EPA spokesperson clarified that any petrol or diesel lacking OGRA-approved standards will be deemed substandard. Vehicles running on such fuels will be prohibited from using public roads. Moreover, no petrol pump will be allowed to store or sell fuel that does not comply with OGRA standards. The directive takes immediate effect across Punjab, and inspections at fuel stations are set to begin without delay, according to the DG Environment. 'Strict action will be taken against all retailers and suppliers found dealing in substandard fuel,' Dr Imran warned, adding that enforcement teams will ensure full compliance with the new policy. Copyright Business Recorder, 2025
Business Recorder
5 hours ago
- Business Recorder
IHC tax bench's order: All SOE references be routed thru ADRC
ISLAMABAD: The special tax division bench of the Islamabad High Court has ordered that all tax references filed by state-owned enterprises shall be referred to the Alternate Dispute Resolution Committee under Section 134A of the Income Tax Ordinance, 2001. The state-owned enterprises contended that those tax reference applications which were instituted prior to the enactment of the Tax Laws Amendment Act, 2024 ought to be adjudicated by the Court in accordance with the procedure applicable at the time of filing of the tax reference application. However, the counsel for the Commissioner, Osama Shahid (Advocate) placed reliance upon a recent judgment of the Supreme Court of Pakistan wherein a case filed in the year 2023 (i.e., prior to the enactment of the Tax Laws Amendment Act, 2024) was referred to the mandatory alternate dispute resolution committee under Section 134A of the Ordinance. In light of the Supreme Court's judgment, the Islamabad High Court referred to matters to alternate dispute resolution committee. Tax dispute: IHC grants conditional relief to SOE Earlier, the Islamabad Bench of the ATIR had referred several appeals filed by and against state-owned enterprises to the alternate dispute resolution committee. The Commissioner Inland Revenue (Appeals), Islamabad has also refused to adjudicate any appeal filed by a state-owned enterprise in light of the Supreme Court's judgment. It appears that the only recourse available to a state-owned enterprise in case of a tax dispute is the alternate dispute resolution mechanism provided under Section 134A of the Ordinance regardless of whether the dispute initiated prior to or after the enactment of the Tax Laws Amendment Act, 2024. It is pertinent to note that several state-owned enterprises have also assailed the vires of the Tax Laws Amendment Act, 2024 before the Islamabad High Court by filing writ petitions which are currently sub judice. Copyright Business Recorder, 2025
