Government Plans Petroleum Levy Cut While Seeking Rs. 1.5 Trillion Elsewhere
The government is examining a proposal to gradually reduce the Petroleum Levy to Rs. 5 to Rs. 10 per liter and replace around Rs. 1.45 trillion with Rs. 1.5 trillion in annual revenue through new taxes, reduced exemptions, spending cuts and better enforcement, according to a report by Business Recorder.
The Ministry of Planning has circulated the proposal to the Finance Ministry, FBR and State Bank of Pakistan for review. Petroleum Levy collections reached Rs. 1.557 trillion in FY2025-26 against a target of Rs. 1.468 trillion, while the target for FY2026-27 is Rs. 1.576 trillion.
Among the measures under review are higher Federal Excise Duty and regulatory duties on luxury imports, expensive vehicles and high-end consumption. These steps could generate an estimated Rs. 200 billion to Rs. 280 billion once fully implemented.
The government is also considering additional taxes on large companies and high-income individuals, withdrawal of selected tax exemptions, agriculture income and wealth taxes, and a carbon levy. The proposal estimates that these measures could generate hundreds of billions of rupees, although it acknowledges that actual collections may fall well below their theoretical potential.
Technology-based tax enforcement is another key part of the plan. The proposal calls for greater use of data from banks, utilities, travel, property and retail transactions to identify tax evasion. It estimates that stronger enforcement and reduced leakage in customs and refunds could eventually add Rs. 250 billion to Rs. 450 billion annually.
The plan also proposes bringing more retailers into the tax net through fixed levies linked to electricity connections and point-of-sale systems. GIS and satellite technology could be used to identify under-declared commercial and industrial properties for taxation, although property and agriculture taxes fall largely under provincial jurisdiction.
The proposal also counts potential savings from lower interest rates as part of the fiscal space. A 100 basis point reduction could eventually save an estimated Rs. 350 billion to Rs. 500 billion a year in debt servicing, while a 200 basis point cut could create savings of up to Rs. 1 trillion.
The document estimates that the proposed revenue measures, combined with potential interest savings, could provide Rs. 1.12 trillion to Rs. 1.94 trillion in fiscal space within 12 months and Rs. 2.295 trillion to Rs. 3.56 trillion by the 24th month.
The proposal notes that replacing the Petroleum Levy with FBR taxes could leave the federal government short because FBR revenue is shared with provinces. Any levy cut would also require IMF approval and provincial coordination.
The plan is still under review, with the Ministry of Planning seeking feedback from relevant institutions.
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