ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet is expected to approve an increase of Rs 4.12 per litre in petrol (MS) and diesel prices. The proposed hike aims to generate Rs 34 billion to support oil refineries, resolve sales tax issues, and increase the margins of Oil Marketing Companies (OMCs), sources close to the Petroleum Minister told Newzshewz.
According to sources, petroleum products such as petrol, diesel, kerosene, and light diesel oil (LDO) have been classified as “exempt” under the Finance Act 2024-25. As a result, input sales tax has become a cost for refineries and OMCs—amounting to an estimated Rs 34 billion for FY 2024-25—which cannot be recovered through product prices, as these are regulated and fixed by OGRA under government policy.
A draft proposal to levy a 3–5% sales tax on MS and HSD was prepared in consultation with the oil industry, the Ministry of Finance, and the FBR. However, it could not be implemented due to a lack of agreement with the IMF to allow these products to be taxed at reduced GST rates.
Sources indicated that applying the standard 18% GST on MS and HSD would result in a price increase of around Rs 45 per litre, which is deemed undesirable. Any change to the sales tax rate would require prior consultation with the IMF and parliamentary approval.
In addition to the sales tax issue, OMCs and petroleum dealers have requested an increase in their margins on MS and HSD. OGRA has recommended raising OMCs’ and dealers’ margins by Rs 1.13 and Rs 1.40 per litre, respectively, to ensure the sustainability of the oil supply chain.
OGRA’s recommendations have been reviewed, and certain amendments have been suggested in the summary. To partially address the financial challenges faced by refineries, OMCs, and dealers, the following proposals have been submitted for ECC’s consideration: To partially address the financial issues of the Refineries, OMCs and Dealers, the following proposals are submitted for consideration ; (i) since the petroleum products (Mogas, Diesel, Kerosene and LDO) are exempted from sales tax during current financial year, the refineries and OMCs’ unadjusted sales tax during July 2024- June 2025 on these products may be compensated through IFEM (estimated Rs.34 billion). The amount may be recovered in 12 months and recovery of this item will cease from the 13th month automatically ;(ii) for FY 2025-26, 3-5% sales tax on above mentioned products may be imposed through Finance Act, however, in case the products remain exempted from sales tax in the FY 2025-25, the unadjusted sales tax may continue to be compensated through IFEM as a fallback option to keep the oil supply chain sustainable ;(iii) the margins of OMCs and Petroleum Dealers may be enhanced to keep their business sustainable ; and (iv) OGRA will develop a mechanism for adjustment of GST claims for above period and effective utilization of digitization cost along-with implementation timelines within one month of approval. Full cost of the digitization will be borne by OMCs throughout the oil supply chain including outlets.
The indicative impact on prices of MS and SHD will be as follows ;(i) Refinery & OMCs ‘unadjusted Sales Tax -(Rs. -28 billion for July-Aptil,2024 -25 and (Rs. – 6 billion for May-June, 2025- impact Rs 1.87 per litre for 12 months;(ii) OMCs Margins (including-digitalization cost) Rs 1.13 per litre ; and (iii) Petroleum Dealers Margin, Rs 1.12 per litre. The total impact will be Rs 4.12 per litre.
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