Pakistan govt set to slap GST on POL products, hike petroleum levy
ISLAMABAD: The government has reportedly decided to increase the petroleum levy from Rs80 to Rs90 per litre and to impose a 3–5 percent General Sales Tax (GST) on petroleum products to support local refineries, well-informed sources told Business Recorder. The move also aims at ensuring the timely implementation of fortnightly petroleum price revisions.
The decision was taken by the Economic Coordination Committee (ECC) of the Cabinet on May 13, 2025, and was subsequently ratified by the Federal Cabinet on May 20, 2025.
During a briefing to the ECC, the Petroleum Division explained that petroleum products—including Mogas, diesel, kerosene, and light diesel oil (LDO)—had been classified as 'exempt' under the Finance Act 2024-25. As a result, input sales tax became a cost burden for refineries and Oil Marketing Companies (OMCs), amounting to approximately Rs34 billion for FY 2024-25.
Last 3-1/2 months of FY25: petroleum levy hike by Rs18.02 to generate Rs90bn revenue
This cost cannot be passed on to consumers due to government-regulated petroleum pricing, which is determined by the Oil and Gas Regulatory Authority (OGRA) under federal policy.
A draft proposal to levy a 3–5 percent GST on motor spirit (MS) and high-speed diesel (HSD) was developed in consultation with the oil industry, the Ministry of Finance, and the Federal Board of Revenue (FBR). However, it could not be implemented due to the lack of agreement with the International Monetary Fund (IMF) on taxing these products at reduced GST rates.
Applying the standard 18 percent GST would result in a price increase of approximately Rs45 per litre for MS and HSD, which the government considers undesirable. Any change to the GST rate would require prior consultation with the IMF and approval from Parliament.
In addition to the GST matter, the ECC also approved an increase in margins for OMCs and petroleum dealers by Rs1.13 and Rs1.40 per litre, respectively, to ensure the sustainability of the oil supply chain. OGRA's initial recommendations on the matter were reviewed, and certain amendments were made before final approval.
To partially address the financial issue of the refineries, OMCs and Dealers, the following proposals were submitted for consideration: (i) since the petroleum products (Mogas, Diesel, Kerosene and LDO) are exempted from sales tax during current financial year, the refineries and OMCs' unadjusted sales tax during July 2024-June 2025 of these products may be compensated through IFEM (estimated Rs34 billion).
The amount may be recovered in 12 months and recovery of this item will cease from the 13th month automatically; (ii) for FY 2025-26, 3-5 percent sales tax Mogas/HSD products may be imposed through Finance Act, however, in case the products remain exempted from sales tax in the FY 2025-26, the unadjusted sales tax may continue to be compensated through IFEM as a fall back option to keep the oil supply chain sustainable; (iii) the margins of OMCs and Petroleum Dealers may be enhanced to keep their business sustainable; and (iv) OGRA will develop a mechanism for adjustment of GST claims for above period and effective utilization of digitization cost along-with implementation timelines within one month of approval. Full cost of the digitization will be borne by OMCs throughout the supply chain including outlets.
The Petroleum Division further briefed the forum that on the basis of these proposals, indicative impact on prices of MS and HSD will be as follows: (i) refinery and OMCs' unadjusted sales tax (Rs28 billion for July-April, 2024-25) and (Rs6 billion for May –June, 2025) recovery timeframe at Rs1.87 per litre; (ii) OMCs margins (including digitization cost) will have an impact of Rs1.13 per litre; and (iii) Petroleum Dealer's Margin, Rs1.12 per unit. Total impact will be Rs4.12 per litre.
However, after discussion, the ECC decided that OMCs' and Refineries unadjusted sales tax of FY25 may be compensated from May 16, 2025, through IFEM (estimated Rs34 billion to be verified by OGRA). The amount may be recovered till end of FY26 on the following rates and recovery of this item will cease subsequently after: (i) HSD sales tax adjustment at Rs2.09 per litre; and (ii) Mogas, Rs1.07 per litre.
Copyright Business Recorder, 2025
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Express Tribune
13 hours ago
- Express Tribune
Petrol price up by Re1, LPG down by Rs4.62/kg
Listen to article The federal government has raised the petrol price by Re1 for the next fortnight, while keeping the high-speed diesel rate unchanged. The new prices will be applicable from June 1. According to a notification issued by the Finance Department, petrol will now be sold at Rs253.63 per litre while high speed diesel (HSD) will continue to be sold at Rs254.64 per litre. The finance ministry said that the prices were based on recommendations from OGRA and other relevant ministries. The government is focusing more on collecting petroleum levy on petroleum products to redirect to subsidize electricity prices. It had earlier decided to fund Rs1.70 per unit subsidy for the consumers of electricity by redirecting PL collection. It also later decided to redirect PL collection to fund canal and road projects in Balochistan province. The government has already decided to increase the petroleum levy rate up to Rs90 per litre on the sale of oil products. At present, the consumers are paying Rs78 per litre in petroleum levy on petrol and Rs77 per litre on diesel. LPG The Oil and Gas Regulatory Authority (Ogra) has reduced the price of Liquefied Petroleum Gas (LPG) for June 2025 in response to fluctuations in the global market. According to an Ogra notification, the new consumer price of LPG has been set at Rs2,838.31 per 11.8 kg cylinder, down from Rs2,892.91 in May. This reflects a decrease of Rs54.60 per cylinder, or Rs4.62 per kilogram. The regulator attributed the price reduction to a 2.67% drop in the Saudi Aramco Contract Price (CP), which directly impacts local LPG producer rates. Additionally, a slight 0.35% increase in the average dollar exchange rate was recorded. For June, Ogra has set the revised producer price at Rs199,234.49 per ton, which stood at Rs203,861.82 in May - causing a decline of Rs4,627.33 per ton. Irfan Khokhar, Chairman of the All Pakistan LPG Distributors Association, welcomed the reduction in LPG prices and urged the government to ensure that the official price set by Ogra is strictly enforced.
Express Tribune
14 hours ago
- Express Tribune
Retailers push for tax reforms
Listen to article Pakistan's organised retail sector on Friday urged the government to overhaul the current retail taxation structure in the upcoming Finance Bill 2025-26, highlighting the need for fairer policies to support compliant businesses and expand the tax base. In an appeal to Federal Minister for Finance Muhammad Aurangzeb, the Chainstore Association of Pakistan (CAP) — representing over 150 Tier-1 retail chains — called for inclusive policymaking through structured consultation with the private sector. CAP said the budget presents a key opportunity to address long-standing disparities and bring undocumented retailers into the tax net without penalising formal players. The association expressed confidence in the government's commitment to economic revival. CAP underscored the contributions of integrated retailers to employment, commerce, tax revenue, and exports, despite their small share in the overall retail sector. Currently, POS-integrated retailers contribute around 25-30% of turnover in taxes under various heads, while most of the sector remains either under-taxed or undocumented. CAP warned this imbalance has placed an unsustainable burden on documented businesses, forcing many to downsize or shut down. CAP Chairman Asfandyar Farrukh said strict enforcement actions and unresolved technical issues in the FBR-POS system have disrupted compliant retailers. The removal of GST concessions last year and the failure of the Tajir Dost Scheme due to poor planning worsened matters.
Business Recorder
18 hours ago
- Business Recorder
Minister opposes IMF demand of more taxes on agri sector
KARACHI: Sindh Minister for Agriculture Muhammad Baksh Mahar has expressed serious concerns over the International Monetary Fund's (IMF) demand to impose an 18% General Sales Tax (GST) and increase Federal Excise Duty (FED) on fertilisers, sprays, and agricultural machinery. Mahar said, 'The IMF's demand is extremely unfair and anti-farmer, which will prove disastrous for the country's agricultural sector and farmers. The IMF must refrain from proposing additional taxes on the agriculture sector.' He emphasised that farmers across the country, including Sindh, are already suffering due to climate change, water scarcity, and low crop prices. The provincial minister warned that the new taxes would lead to an enormous increase in agricultural production costs, ultimately jeopardising food security. He stated that this would trigger a new wave of inflation in the country. He strongly urged the federal government to persuade the IMF and make it aware of the importance of the agriculture sector. He made it clear, 'The IMF's demand is causing severe unrest among farmers, and we vehemently oppose any such proposal.' He said that providing facilities to agriculture is the need of the hour instead of imposing additional burdens on it. Copyright Business Recorder, 2025
