Reliance on taxing POL products

EDITORIAL: Federal Minister for Petroleum Ali Pervaiz Malik while addressing the Energy Conference this Thursday past maintained that the Petroleum Division could not continue to bear the excessive taxation and financial intervention merely to meet the budgetary targets as the sector’s sustainability is equally important.

A day later on Friday in a written response to the lower house of parliament, Ali Pervaiz Malik noted that the petroleum levy is budgeted to generate 1.676 trillion rupees in the current year and that while the levy was reduced to provide relief to consumers in the early weeks of the US/Israel invasion of Iran yet it has been restored in phases in line with the approved budgetary target. This restoration is sourced to the pressure by the International Monetary Fund (IMF) to adhere to the conditions agreed by the authorities under the ongoing Extended Fund Facility programme; notably, to ensure that the budgeted revenue is realised, no unbudgeted outlay approved (including a rise in subsidy) and any additional costs be passed on in their entirety to the consumers.

“The levy on petrol and HSD has been increased… on both products it is now 80 rupees per litre each,” the Minister’s written reply further noted. It is relevant to note that an additional reason for the recent rise in prices at the filling station is attributable to the deal that Ali Pervaiz Malik brokered, on the instructions of the Prime Minister, with the Pakistan Petroleum Dealers Association, which had begun a nationwide strike. However, the All Pakistan Goods Transport Association suspended its nationwide striker on 16 August for 40 days following successful negotiations with the government on fuel pricing, axle load limits (a provincial subject), and toll taxes to ensure that the agreed phased agreement would be implemented – an agreement brokered by Aleem Khan the Minister for Communications.

These agreements are clearly beyond Malik’s purview, however, it is significant that he took the opportunity at a conference to argue in favour of not over-burdening the sector with taxes as its implications on inflation, and thereby on the general public as well as on productivity with negative implications on employment levels cannot be disputed.

The increased reliance on the petroleum levy to meet the government’s expenditure (largely current non-development expenditure that accounts for around 93 percent of total outlay) has been evident in each subsequent budget. The reason is two-fold. First, the levy is credited under other taxes incorrectly - taxes that are not part of the divisible pool, which have to be shared with the provinces under the National Finance Commission award even though the levy is clearly a sales tax payable by the general public, which are part of the divisible pool. And secondly, and equally concerning is the fact that this is an easy to collect tax with the gas stations acting as withholding agents. There is little input from the Federal Board of Revenue (FBR) that may simply oversee the payment of the levy into the treasury.

The government must surely be aware that the poverty levels in this country are 44 percent, an unacceptable high level, and any increase in the levy not only erodes the purchasing of each rupee earned by those who purchase petrol for their vehicles but also for those who use public transport. There is, therefore, an urgent need for the government to reform the tax structure and shift the onus of a reliance on indirect (for example, sales tax whose incidence on the poor is greater than on the rich) to direct (income and rent) taxes that are based on the ability to pay principle.

Copyright Business Recorder, 2026