ISLAMABAD: A major policy divide has emerged within the federal government after the Petroleum Division strongly opposed plans to raise petroleum levy targets in the upcoming budget, warning that excessive fuel taxation could ignite affordability pressures and fuel public unrest amid rising global oil prices.
In its budget recommendations for fiscal year 2026-27, the division urged the finance ministry to slash the petroleum levy collection target to Rs1 trillion and cap the levy at Rs50 per litre until international crude prices stabilise. Officials argued that the current tax structure has become unbearable for consumers already struggling with inflation and surging transport costs.
Petroleum Minister Ali Pervaiz Malik also raised alarm over the impact of the escalating US Iran conflict on global energy markets. In a letter to Finance Minister Muhammad Aurangzeb, he stressed that reducing dependence on petroleum levies had become essential to shield vulnerable households from another wave of fuel inflation.
The proposal directly challenges commitments made to the International Monetary Fund, which projects petroleum levy collections of nearly Rs1.73 trillion next year. The government is currently charging around Rs118 per litre in levy on petrol, while taxes account for nearly 36% of the retail fuel price. The Petroleum Division suggested that higher levy rates should only return if crude oil prices fall below $60 per barrel.
The division also recommended cutting sales tax on LPG from 18% to 10%, arguing that the fuel is widely used by low income households. It further sought Rs130 billion in budgeted gas subsidies to prevent additional burden on residential consumers and called for the removal of the 10% super tax imposed on oil and gas companies.
Officials additionally pressed the Federal Board of Revenue to clear billions of rupees in pending refunds and resolve tax disputes involving energy firms, warning that mounting financial pressure on the sector could threaten fuel supply stability and undermine Pakistan’s already fragile energy chain.
