Introduction of General Sales Tax (GST)
The federal government plans to implement a 3–5 percent General Sales Tax (GST) on petroleum products in the upcoming fiscal year to bolster domestic refineries and maintain the oil supply chain.
Approval and Decision-Making
- Date of Decision: May 13, 2025, by the Economic Coordination Committee (ECC).
- Approval: Federal Cabinet approved on May 20, 2025, as reported by Business Recorder.
Current Tax Exemption and Financial Burden
- Petroleum products are currently exempt from sales tax under the Finance Act 2024-25.
- Unadjusted input tax claims create a financial burden estimated at Rs. 34 billion for FY2024-25.
- Regulated pricing prevents passing this cost to consumers.
Proposed GST Implementation
- The Petroleum Division, alongside the Ministry of Finance and Federal Board of Revenue (FBR), proposed a 3–5 percent GST on motor spirit (MS) and high-speed diesel (HSD) via the Finance Act 2025.
- A full 18 percent GST was deemed unfeasible due to:
- An estimated Rs. 45 per litre price increase.
- Requirement for prior IMF approval.
Interim Compensation Measures
- Effective Date: May 16, 2025, until the end of FY2025-26.
- Mechanism: Compensation for unadjusted sales tax claims through the Inland Freight Equalization Margin (IFEM).
- Recovery Rates:
- High-Speed Diesel (HSD): Rs. 2.09 per litre.
- Petrol: Rs. 1.07 per litre.
Additional Margin Adjustments
- Oil Marketing Companies (OMCs): Margin increased by Rs. 1.13 per litre.
- Dealers: Margin increased by Rs. 1.40 per litre.
- Purpose: Stabilize the petroleum supply chain.
Overall Impact on Prices
- Total Indicative Price Increase: Rs. 4.12 per litre, combining:
- Sales tax recovery.
- Dealer margin hike.
- OMC margin hike.
