The federal government is expected to approve a fuel price increase of over Rs 4 per litre for both petrol and diesel starting May 16.
This hike aims to generate around Rs 35 billion to address financial challenges in the petroleum sector, including refinery sustainability and margin adjustments for Oil Marketing Companies (OMCs).
Under the Finance Act 2024–25, petrol, diesel, kerosene, and light diesel oil (LDO) are classified as “exempt” products.
This exemption has resulted in a Rs 35 billion unrecovered input sales tax burden falling on refineries and OMCs.
Due to price controls by the Oil and Gas Regulatory Authority (OGRA), these extra costs have not been passed on to consumers.
Attempts to Resolve the Issue
A proposal to introduce a 3–5% sales tax on petrol and diesel was prepared but shelved after failing to reach agreement with the International Monetary Fund (IMF) on lower GST rates.
Implementing the full 18% GST was ruled out due to the risk of a sharp price spike (~Rs 45 per litre), which would be politically and economically untenable.
Current Measures and Proposals
OGRA has approved increased per-litre profit margins to help sustain the supply chain:
Rs 1.13 per litre for OMCs
Rs 1.40 per litre for petroleum dealers
Proposals submitted to the Economic Coordination Committee (ECC) include:
Recovering the Rs 34 billion shortfall via the Inter Freight Equalisation Margin (IFEM) over 12 months.
Increasing freight charges for Attock Refinery Limited (ARL).
Using IFEM as a contingency if sales tax exemptions continue into FY 2025–26.
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