Govt Plans to Increase Petroleum Levy in Upcoming Budget

The federal government has decided to remove the cap on the Petroleum Development Levy (PDL) to charge a levy of over Rs. 100 per liter and generate Rs. 194 billion from the next fiscal year 2025-26. Sources told ProPakistani that Pakistan will increase the PDL beyond the current level of Rs. 78 per liter on petroleum products, including petrol and diesel, to help bridge the revenue gap in the Federal Board of Revenue (FBR). This would mark the highest petroleum levy ever imposed in Pakistan’s history and reflects a significant increase from the current fiscal year’s estimated collection of Rs. 1,117 billion. The levy will also support subsidies for the power sector and the emerging electric vehicle industry. Since July 2024, the government has raised the PDL from Rs. 60 to Rs. 78 per liter, generating over Rs. 1 trillion in tax revenue within the first 10 months of the current fiscal year. The government’s target for PDL revenue collection this fiscal year is over Rs. 1,100 billion. So far, during the first nine months of FY25 (July 2024 to March 2025), the government has collected Rs. 833.847 billion through the petroleum levy. In comparison, total collections stood at Rs. 1,019 billion in FY24 and Rs. 580 billion in FY23. Sources said that the government has also agreed with the IMF to lift the 10 percent cap on the Debt Service Surcharge (DSS) charged on electricity bills, which currently limits the surcharge to 10 percent of power companies’ revenue requirements. This measure is aimed at reducing Pakistan’s circular debt in the energy sector. According to the IMF’s country report on Pakistan, the federal government will introduce legislation by June 2025 to remove the DSS cap. The report noted Islamabad’s plan to achieve net-zero circular debt flow by fiscal year 2025 through a combination of timely tariff increases, targeted subsidies, and cost-reducing reforms. Pakistan has committed to continuing timely quarterly tariff adjustments and monthly fuel cost revisions to close gaps between base tariffs and actual revenue needs, preventing further circular debt accumulation. The government’s detailed strategy will be outlined in the Fiscal Year 2026 Circular Debt Management Plan, set for cabinet approval by July 2025. Notably, all provinces have agreed not to introduce new subsidies on electricity or gas, supporting the government’s commitment to financial sustainability in the energy sector.