Petroleum prices in Pakistan, including MS Petrol, High-Speed Diesel (HSD), kerosene oil, and light diesel oil (LDO), could rise by up to Rs. 45 per liter due to the International Monetary Fund’s (IMF) demand for an 18 percent sales tax on fuel.
The IMF has rejected Pakistan’s initial proposal of a 1-2 percent sales tax, calling for a significantly higher rate instead. While the government has not yet implemented the demand, the IMF’s stance has put the $5-6 billion Brownfield Refinery Policy 2023 upgrade projects at risk.
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Refineries have criticized the shift from zero-rated to exempt sales tax status, claiming it has increased operational costs while nullifying a $1.65 billion incentive package tied to an ESCROW account. These financial strains are expected to lead to a combined loss of $1.152 billion, alongside an estimated $1 billion annual foreign exchange loss if refinery upgrades are delayed further.
To address the revenue shortfall, the government is considering slashing the petroleum levy from Rs. 60 to Rs. 15 per liter while introducing the 18 percent sales tax. The IMF has indicated its support for this adjustment if it meets revenue targets.
The IMF has also suggested a 15 percent sales tax on essential items, including food, though the government has not yet acted on this recommendation. As discussions continue, the public awaits clarity on how these policy changes may impact everyday expenses.
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