Pakistan’s Petroleum Division has proposed a significant revision to fuel taxation policy ahead of the 2026-27 federal budget, recommending that the petroleum levy collection target be capped at Rs1 trillion and that the levy rate on petrol and diesel be reduced to Rs50 per litre amid persistently high global oil prices.
In formal budget recommendations submitted to the Finance Ministry, the Petroleum Division warned that maintaining elevated levy targets and rates is placing undue financial pressure on consumers and could threaten social and economic stability. The division’s recommendations were also discussed at the Prime Minister’s Office as officials prepared the budget slated to be unveiled on June 5, 2026.
According to the proposal, the suggested Rs1 trillion cap is Rs727 billion lower than the target projected by the International Monetary Fund (IMF) for the next fiscal year and Rs468 billion less than the original target for the current year. The division also proposes that the levy on petrol and diesel be cut by Rs30 per litre, from around Rs118 at present to Rs50, with potential increases only if global oil prices fall below $60 per barrel.
The move comes as Pakistan continues to grapple with the combined impact of high international energy prices, regional geopolitical tensions and public concerns about fuel affordability. Since the onset of conflict in the Middle East, the government has already raised diesel prices by nearly 48 per cent and petrol by 56 per cent to align with global costs and bolster revenue through levies.
The Petroleum Division argues that trimming the levy will help ease the burden on households, especially vulnerable segments of society, and support overall economic stability. It has also called for lowering the sales tax on liquefied petroleum gas (LPG) from 18 % to 10 % and for no increase in levy targets for LPG, a key fuel for many low-income households.
Beyond levies, the division has forwarded a range of sectoral proposals, including resolving legacy issues faced by Pakistan State Oil (PSO), addressing tax refund bottlenecks for gas utilities and reallocating budgetary provisions for gas subsidies, which it says have been distorted by charging these costs to consumers instead of booking them in the federal budget.
Oil and gas companies have also raised concerns about the heavy tax burden, blocked refunds and policy uncertainties, which the division says threaten the financial viability and sustainability of the energy supply chain.
The Finance Ministry has yet to publicly respond to these proposals, and discussions with the IMF on budget targets are reported to have concluded, though differences over revenue measures like the petroleum levy remain a key point of debate.
