Prime Minister Shehbaz Sharif has increased the prices of petrol and high-speed diesel (HSD) by Rs26.77 per litre. The decision, announced on Friday, comes despite there being no required increase in international petrol rates.
Fuel Price Adjustments and Tax Hikes
The price of high-speed diesel has been set at Rs380.19 per litre, rising from Rs353.42, which represents a 7.5% increase. Petrol prices have climbed 7.3%, moving from Rs366.6 to Rs393.35 per litre.
Petroleum Division officials clarified that the petrol price hike was driven by an additional tax of nearly Rs27 per litre rather than global market shifts. Petroleum Minister Ali Pervaiz Malik stated that regional tensions are pushing global oil prices higher, forcing the government to transfer this burden to consumers.
The IMF Influence and Tax Strategy
The government has fixed the new petroleum levy on petrol at Rs107.4 per litre. This strategy involves recovering taxes intended for diesel consumers from petrol users, a policy the Prime Minister previously implemented and later reversed following public backlash.
Sources indicate the International Monetary Fund (IMF) requested a tax of Rs80 per litre on both petrol and diesel. To meet these goals without introducing a levy on high-speed diesel, the government increased the petrol tax to Rs107.4 per litre.
The IMF has further requested a tax increase of Rs53 per litre. The government is expected to decide next week whether this remaining amount will be recovered from petrol or diesel users.
Fiscal Impacts and Budget Cuts
During the first nine months of the fiscal year, the government collected over Rs1.2 trillion in petroleum levies, reaching 82% of its Rs1.468 trillion annual target. To partially subsidize diesel and offset levy reductions, the federal development budget was slashed by 17%, or Rs173 billion.
Currently, total taxes on petrol amount to Rs134 per litre, including the Rs107 petroleum levy, Rs24 customs duty, and a Rs2.5 climate support levy. Diesel taxes stand at approximately Rs36 per litre, comprising Rs33 in customs duty and a Rs2.5 climate support levy.
Market Relief and Future Outlook
While petrol and diesel rose, other products saw price drops due to global trends. Kerosene oil fell from Rs429 to Rs365 per litre, while light diesel oil decreased from Rs299 to Rs270 per litre.
Looking ahead, the climate support levy on both products is likely to increase by Rs2.5 per litre, reaching Rs5 per litre starting July 1st. The IMF is expected to approve the third review and fourth loan tranche of the $7b bailout package in the first week of May.
Frequently Asked Questions
Why did petrol prices increase if international rates remained stable?
Petrol prices were increased due to the imposition of a nearly Rs27 per litre additional tax, as stated by Petroleum Division officials.
What is the current tax breakdown for petrol and diesel?
Petrol total taxes are Rs134 per litre (Rs107 petroleum levy, Rs24 customs duty, and Rs2.5 climate support levy). Diesel total taxes are about Rs36 per litre (Rs33 customs duty and Rs2.5 climate support levy).
What are the upcoming changes to fuel levies?
The climate support levy is expected to increase to Rs5 per litre by July 1st. The government may decide next week how to implement a further IMF-requested tax increase of Rs53 per litre.
Do you believe shifting the tax burden from diesel to petrol is a sustainable way to manage economic pressures?
