The International Monetary Fund (IMF) has recommended increasing motor spirit and high-speed diesel prices by Rs47 per litre on the standard rate of 18%.

Also, the IMF focused on increasing the carbon levy of Rs5 per litre for consumers.

“The Petroleum Division remains neutral regarding the Power Division’s request for additional funds. However, it is essential to consider the potential impact on the petroleum sector and to avoid placing additional burdens on it, especially given the challenges it is already facing,” sources in the Petroleum Division stated in its communication.

This comes after the Petroleum Division proposed to impose a 3% sales tax, which was rejected by the IMF.

rime Minister Shehbaz Sharif had earlier announced a reduction in electricity tariffs — Rs7.41 per unit for domestic users and Rs7.69 for industrial users.

However, the sustainability of this relief is uncertain, as it hinges on global energy prices and summer hydropower availability.

Following a recent drop in international petroleum prices, the government raised the petroleum levy (PL) from Rs60 to Rs70 per litre on March 16, 2025.

However, the Petroleum Division has warned that if global prices rebound in the coming months, the government may be forced to either raise retail prices or cut the PL to protect consumers — a move that would jeopardize the Rs58.6 billion collection target linked to the electricity tariff relief.

The Finance Division has set a record PL revenue target of Rs1.281 trillion for FY 2024–25.

By February 2025, Rs744 billion (58 percent of the target) had been collected, raising concerns about the feasibility of meeting the full-year goal.

The Petroleum Division has also raised alarms over the oil sector’s financial strain.

The zero-rating of sales tax on MS and HSD in recent years to prevent the accumulation of input tax for refineries and oil marketing companies (OMCs) has led to estimated losses of Rs35 billion in the current fiscal year.

In addition to the sales tax hike, the IMF has proposed a Rs5 per litre carbon levy, further increasing consumer fuel prices.

While a three percent sales tax was initially considered to ease the burden, it was dropped in favor of the IMF’s push for the standard rate.

The Petroleum Division, in a formal communication dated April 7, 2025, responded to the Power Division’s summary to the Economic Coordination Committee (ECC), titled “Tariff Rationalization for Power Sector.”

The letter expressed serious reservations about the Rs10 per litre increase in petroleum levy now at Rs70 per litre meant to fund the electricity price cut, describing it as an unfair burden on an already stressed petroleum sector.

The Division maintained a neutral stance on the Power Division’s request for additional funding but urged policymakers to consider the broader impact on the energy sector before making further financial demands.

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