The caretaker government hiked the fuel prices on Wednesday, citing rising world oil and depreciating rupee. But the devil is in the details as the increase in petroleum development levy was also a reason, which the Finance Divison did not mention in the statement it issued on Thursday night.

Petroleum prices are computed by the Oil and Gas Regulatory Authority (Ogra) which makes it clear how much petroleum products cost before taxes are added.

The calculation also provides an answer to a commonly asked question if the government is collecting only one tax on petroleum products or multiple taxes as is the case with electricity bills.

The per litre petrol price in Pakistan is now Rs305.36 after the latest hike of Rs14.91.

Ogra issues a detailed document whenever new oil prices are announced, explaining at what price the fuel was purchased from a foreign country and what taxes were applied to it.

Due to refinery limitations, Pakistan meets a major proportion of its fuel needs from imported petroleum products including petrol, diesel and kerosene oil, instead of importing crude oil and refining it.

Currently, two varieties of petrol are being important with RON number 95 (comparatively better fuel) and RON number 92.

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RON 95 petrol was imported at $104.49 per barrel and RON 92 petrol at $98.65 per barrel between August 16 to August 31, according to the Ogra estimates.

These products carry a premium of $3.59 per barrel (a barrel contains about 159 litres), including freight costs.

To find out how much each litre of fuel costs at the Pakistani ports, Ogra multiplies the US dollar price of a given petroleum product by the average exchange rate.

The average exchange rate from August 16 to August 31 was Rs299.76. Hence, RON 95 petrol cost Rs203.76 per litre at ports.

The first tax levied on petroleum products is in the form of customs duty which is applied to all products at a uniform rate of 10%.

This means a Custom Duty of Rs24 will be applied to every litre of petrol between September 1 and 15.

In the next leg of its journey, petrol enters the network of oil marketing companies, eventually becoming available at petrol pumps.

The price at which petroleum products are supplied to oil marketing companies is called ‘PSO Cost of Supply’ and this price currently stands at Rs228.59 per litre for petrol, according to Ogra calculations.

Before being sold to consumers other taxes and charges are added to the cost, including profits of the oil marketing companies (OMCs) and petrol pump owners.

Then the government collects a petroleum development levy, which was set at Rs55 before September 1. Now it has been increased by Rs5 to Rs60 per litre.

The margin or profit of oil marketing companies is Rs6 per litre and dealers receive a commission of Rs7 per litre.

Apart from this, Rs3.77 per litre is charged as an inland freight margin so that the price of petrol remains the same across the country and there are no price differences in different cities due to transportation costs.

If these three margins are removed, the government is earning at least Rs84 per litre from petrol in the form of customs duty and levy.

In the past, there was a third tax on petrol in the form of sales tax but it has not been collected since March 2022.