• OMCs, refineries, dealers to benefit from additional Rs75bn
• Petroleum division mulls GST on oil products
ISLAMABAD: For a third time in two months, the government is considering imposing additional costs — this time at the rate of Rs4.12 per litre — on the prices of petroleum products, a move that may deprive consumers of potential relief in prices due to be announced for the next fortnight today (Thursday).
This has been proposed by the petroleum division to the Economic Coordination Committee (ECC) of the Cabinet. The impact of Rs4.12 per unit works out to be around Rs75 billion on an annual basis to be paid to oil marketing companies (OMCs), refineries and retail dealers to meet their demands.
On top of this, the petroleum division has also recommended imposition of general sales tax on petroleum products at the rate of Rs3-5 per litre from July 1, through the finance bill 2025-26.
Without these proposed measures, the prices of petrol and diesel were estimated to decline by about Rs3.5 and Rs7 per litre, respectively, for the next fortnight starting May 15, owing to decline in the international market and a slight ease in import premium on petrol. Over the last two months, the government has disallowed about Rs18 per litre potential reduction in petroleum prices to discourage rise in petroleum consumption.
This was done through increase in petroleum levy, including through a special presidential ordinance, to divert funds for higher subsidy on electricity rates and construction of highways and motorways in Balochistan and Sindh.
According to a summary sent to the ECC, the petroleum division has proposed a Rs1.87 per litre allowance through changes in the pool of inland freight equalisation margin (IFEM) to satisfy OMCs and refineries with an estimated financial impact of Rs34bn. In addition, the division has proposed an increase in sale margins to the OMCs at the rate of Rs1.13 and Rs1.12 per litre for petroleum dealers from their existing rates of about Rs8 and Rs8.64 per litre.
On the annual basis, the additional financial impact of the increase in margins is estimated to be more than Rs40bn depending on sales volume.
The division argued that petroleum products (petrol, high speed diesel, kerosene and light diesel oil) had been classified as “exempted” under Finance Act 2024-25. Resultantly, the input sales tax became cost of refineries and OMCs (Rs34bn for FY2024-25) which could not be recovered through the product prices as the petroleum products rates were regulated by the Oil and Gas Regulatory Authority (Ogra).
Strangely, the division claimed that petroleum prices were “being fixed by Ogra under GoP Policy”. It is, however, a matter of record that actually calculations made by Ogra are forwarded by the division to the ministry of finance which itself moves a summary to the prime minister for approval every fortnight.
The major price cuts are then announced by the prime minister himself or his office, otherwise price revisions are announced by the ministry of finance.
The petroleum division also said a draft proposal to levy 3-5pc sales tax on petrol and HSD was developed in consultation with the oil industry, finance ministry and Federal Board of Revenue which could “not be implemented due to non-agreement with IMF to allow these products be taxed at reduced rates of GST”.
On the other hand, the petrol and diesel price increase due to standard rate of 18pc GST would be around Rs45 per litre, which was not desirable. Any amendment to the sales tax rate will require consultation with IMF and parliament’s approval.
Supply chain
Besides the sales tax issue, OMCs and dealers have requested for enhancement of their margins on petrol and HSD. Ogra has recommended an increase of OMCs and petroleum dealers’ margin by Rs1.13 and Rs1.40/litre, respectively, to ensure sustainability of the supply chain.
However, with partial amendment the summary proposed Rs1.13 per litre additional benefit to OMCs and Rs1.12 per litre to dealers. It said that since petroleum products were exempted from sales tax during current financial year, the refineries and OMCs’ unadjusted sales tax during July 2024-June 2025 on these products may be compensated through IFEM (estimated at Rs34bn).
“For FY2025-26, 3-5pc sales tax on these products may be imposed through Finance Act. However, in case the products remain exempted from sales tax in the FY 2025-26, the unadjusted sales tax may continue to be compensated through IFEM as a fallback option to keep the oil supply chain sustainable,” the petroleum division insisted.
Published in Dawn, May 15th, 2025
