Key Takeaways
- The government is proposing to reduce the Petroleum Levy by Rs. 5 to Rs. 10 per liter.
- New revenue measures aim to replace Rs. 1.45 trillion in Petroleum Levy with Rs. 1.5 trillion annually.
- Proposed measures include increased excise duties, tax enforcement, and potential interest savings.
The government of Pakistan is considering a proposal to gradually reduce the Petroleum Levy to Rs. 5 to Rs. 10 per liter, according to a report by Business Recorder. This move is part of a broader strategy to replace the lost revenue through new sources.
The Ministry of Planning has circulated the proposal to the Finance Ministry, FBR, and State Bank of Pakistan for review. The current Petroleum Levy collections for the fiscal year 2025-26 reached Rs. 1.557 trillion, against a target of Rs. 1.468 trillion, while the target for the next fiscal year, 2026-27, is set at Rs. 1.576 trillion.
To compensate for the potential loss in revenue, the government is exploring various measures, including higher Federal Excise Duty and regulatory duties on luxury imports, expensive vehicles, and high-end consumption. These steps are expected to generate an estimated Rs. 200 billion to Rs. 280 billion once fully implemented.
Additional taxes on large companies and high-income individuals, withdrawal of selected tax exemptions, agriculture income and wealth taxes, and a carbon levy are also under consideration. The government estimates that these measures could generate hundreds of billions of rupees, although it acknowledges that actual collections may fall short of theoretical potential.
Technology-based tax enforcement is another key component of the plan. The proposal calls for greater use of data from banks, utilities, travel, property, and retail transactions to identify tax evasion. Stronger enforcement and reduced leakage in customs and refunds could add Rs. 250 billion to Rs. 450 billion annually, according to the document.
The plan also proposes bringing more retailers into the tax net through fixed levies linked to electricity connections and point-of-sale systems. GIS and satellite technology could be used to identify under-declared commercial and industrial properties for taxation, although property and agriculture taxes fall largely under provincial jurisdiction.
The proposal notes that lower interest rates could provide additional fiscal space. A 100 basis point reduction could save an estimated Rs. 350 billion to Rs. 500 billion annually in debt servicing, while a 200 basis point cut could create savings of up to Rs. 1 trillion.
The document estimates that the proposed revenue measures, combined with potential interest savings, could provide Rs. 1.12 trillion to Rs. 1.94 trillion in fiscal space within 12 months and Rs. 2.295 trillion to Rs. 3.56 trillion by the 24th month. The plan is still under review, with the Ministry of Planning seeking feedback from relevant institutions.
Any reduction in the Petroleum Levy would require IMF approval and provincial coordination. The government is currently in the process of gathering feedback from various stakeholders before finalizing the proposal.
