Diesel Price
ISLAMABAD: For the third time in just two months, the federal government on Thursday opted not to fully transfer the benefit of declining international oil prices to consumers. In its latest biweekly review, the Ministry of Finance announced that while the price of high-speed diesel (HSD) has been reduced by Rs2 per litre, the price of petrol will remain unchanged. These rates will remain in effect until May 31.
According to the revised prices, the ex-depot rate of HSD has been brought down to Rs254.64 per litre from the previous Rs256.64. HSD plays a pivotal role in Pakistan’s economy, particularly in the transport and agriculture sectors. It powers heavy vehicles such as buses and trucks, trains, tractors, and various farm machinery including tube wells and threshers.
Consequently, any fluctuation in diesel prices significantly impacts the cost of essential goods, including food and vegetables, making the price of diesel an inflation-sensitive indicator.
On the other hand, the ex-depot price of petrol, which is extensively used by private motorists, rickshaws, and motorcyclists, has been retained at Rs252.63 per litre. Petrol consumption mainly affects middle- and lower-income groups, making its pricing a politically and socially sensitive issue.
Despite lower international prices, the government has partially offset the potential price relief by increasing the Inland Freight Equalisation Margin (IFEM) on both petrol and diesel. This adjustment aims to recover approximately Rs34 billion in losses incurred by the oil industry due to a tax loophole created under the Finance Bill 2024-25.
The increase in IFEM, proposed by the Petroleum Division, is intended to address financial challenges faced by refineries and oil marketing companies (OMCs) due to the reclassification of petroleum products as “exempt” from input sales tax, which is now non-refundable.
The increase in IFEM — Rs1.87 per litre — is expected to be applied for the entire 2024–25 fiscal year, with the additional charge being withdrawn automatically after 12 months.
Currently, the government collects about Rs96 per litre in taxes on both petrol and diesel. While the general sales tax (GST) remains zero, a petroleum development levy (PDL) of Rs78 per litre is imposed, along with Rs17 per litre in customs duties and an additional Rs17 per litre in distribution and dealer margins.
Over the past two months, the government has withheld approximately Rs18 per litre in potential petroleum price reductions, mainly to curb excessive fuel consumption and to divert revenue from petroleum levies towards infrastructure subsidies, including electricity relief and road construction projects in Balochistan and Sindh.
With monthly petrol and diesel sales ranging between 700,000 and 800,000 tonnes, these two fuels remain the government’s primary sources of indirect tax revenue, far surpassing kerosene sales, which hover around just 10,000 tonnes per month.
