The federal government is considering a proposal to reduce the petroleum levy by Rs. 5 to Rs. 10 per litre. However, the move could create a revenue shortfall of Rs. 1,450 billion to Rs. 1,500 billion over 12 months.
The Ministry of Planning has forwarded the proposal to relevant authorities for consideration. It has also sought feedback from the Ministry of Finance, FBR and State Bank of Pakistan.
According to an official document, petroleum levy collections reached Rs. 1,557 billion during the 2025-26 fiscal year. Meanwhile, the government has set a collection target of Rs. 1,576 billion for the 2026-27 fiscal year.
Petroleum Levy Cut Could Create Revenue Gap
The document estimates that reducing the levy to Rs. 5-10 per litre would leave only Rs. 96 billion to Rs. 180 billion in annual revenue. Therefore, the government would need an alternative source of Rs. 1,500 billion to Rs. 1,600 billion annually.
The petroleum levy falls under non-tax revenue, with its proceeds going entirely to the federal government. In contrast, most taxes collected by the FBR are shared with provinces under the NFC Award.
The government would therefore need to generate around 2.3 times more additional FBR revenue. Officials are considering additional taxes on luxury goods and high-value imports to cover the potential gap.
Govt Explores New Luxury Tax Measures
One proposal seeks to increase the Federal Excise Duty on first-class and business-class air travel. The government also plans higher taxes on luxury vehicles, potentially generating Rs. 200 billion to Rs. 280 billion.
Another proposal involves an additional surcharge on large corporate groups and ultra-high-income individuals. A surcharge of 5% to 7.5% could generate an estimated Rs. 180 billion to Rs. 250 billion.
The proposals remain under consideration as authorities assess their impact on federal revenues. The government will review feedback before deciding whether to reduce the petroleum levy.
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