Petroleum prices in Pakistan, including MS Petrol, High-Speed Diesel (HSD), kerosene oil, and light diesel oil (LDO), are expected to increase by up to Rs. 45 per liter. The spike follows the International Monetary Fund’s (IMF) demand for an 18 percent sales tax on petroleum products, as reported by a national daily.
The IMF rejected Pakistan’s proposal to impose a minimal 1-2 percent sales tax on fuel, insisting on the higher rate. While the government has so far delayed implementing this demand, the IMF’s position has disrupted the $5-6 billion upgrade plans under the Brownfield Refinery Policy 2023.
Local refineries have raised concerns over the shift from zero-rated to exempt sales tax status for petroleum products. They claim the change has increased operational costs and negated a $1.65 billion incentive under the ESCROW account, causing significant financial strain.
Refineries anticipate losses amounting to $1.152 billion from the tax exemption and warn of an additional $1 billion annual foreign exchange loss due to delayed refinery upgrades.
In response, the government is exploring adjustments, including reducing the petroleum levy from Rs. 60 to Rs. 15 per liter and introducing an 18 percent sales tax to meet revenue targets. The IMF has signaled it would accept this compromise if revenue goals are achieved.
The lender has also suggested imposing a 15 percent sales tax on essential items like food, though the government has yet to act on this proposal.
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