In a significant policy shift aligned with the International Monetary Fund (IMF)’s Extended Fund Facility, the Government of Pakistan plans to increase the Petroleum Development Levy (PDL) on to over Rs. 100 per litre in the upcoming fiscal year starting July 2025. This includes a newly proposed Rs. 5 per litre carbon levy on petrol and diesel, agreed upon during recent discussions with the IMF. These measures aim to enhance non-tax revenue, reduce circular debt, and sustain power sector subsidies.
The Petroleum Levy Structure
As of May 2025, the government levies Rs. 78.2 per litre on petrol and Rs. 77.1 per litre on high-speed diesel (HSD) under the existing PDL. The current fuel prices stand at Rs. 254.63 for petrol and Rs. 256.64 for diesel, already reflecting substantial tax burdens.
The planned increase in PDL, coupled with the carbon levy, is expected to significantly raise fuel prices. With the proposed adjustments, petrol and diesel prices could rise to approximately Rs. 300 per litre, assuming other cost factors remain stable. These increases will likely be felt most acutely by middle- and lower-income households, who are particularly vulnerable to inflation in fuel-related expenses.
Govt’s Fiscal Strategy
The government’s move to increase levies is part of a broader fiscal strategy. In the first ten months of the current fiscal year, the PDL has generated over Rs. 1 trillion in revenue. The target for the upcoming fiscal year is Rs. 1.311 trillion, a significant increase aimed at stabilizing Pakistan’s fiscal health and meeting IMF conditions.
While the fiscal imperatives are pressing, the government must also safeguard public welfare. Measures such as targeted subsidies and strengthened social safety nets will be essential to cushion the blow for vulnerable populations. Transparency in communicating these changes can also help manage public sentiment and ensure smoother implementation of policy shifts.
In conclusion, while the proposed fuel levies are fiscally strategic, they carry substantial economic and social trade-offs that require careful balancing.
