The price of key petroleum products such as MS Petrol, High-Speed Diesel (HSD), kerosene oil, and light diesel oil (LDO) is expected to rise by Rs. 45 per liter due to the International Monetary Fund (IMF) urging Pakistan to impose an 18 percent sales tax on these products.
The IMF rejected Pakistan’s proposal to impose a lower sales tax of 1-2 percent and has insisted on a higher 18 percent tax rate. Although the Pakistani government has refrained from immediately implementing this demand, the IMF’s stance threatens to disrupt significant projects under the $5-6 billion Brownfield Refinery Policy 2023.
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Local refineries have already expressed concerns that the proposed shift from zero-rated to exempt status for sales tax has increased operational and project costs, nullifying a $1.65 billion incentive package under the ESCROW account. Refineries anticipate a $1.152 billion loss due to this exemption and warn of an additional $1 billion foreign exchange loss from delayed upgrades.
In addition to petroleum taxes, the IMF has suggested a 15 percent sales tax on essential items like food, though the federal government has not yet acted on this proposal.
The government is considering an alternative approach—reducing the petroleum levy by Rs. 45 per liter from Rs. 60 and imposing an 18 percent sales tax instead. The IMF has not objected to this change, as long as it meets the agreed revenue targets.
