In July 2023, the government of Pakistan recorded a significant collection of Rs 75 billion in petroleum levy (PL), a vital revenue source that doesn’t contribute to the divisible pool.
This increase in revenue was attributed to the upsurge in the PL rate, which reached Rs 55 per litre for petrol. If this trend persists throughout the remaining 11 months of the fiscal year, the government could surpass its ambitious PL budget target of Rs 869 billion by an additional Rs 31 billion.
Despite the higher PL rate, petroleum consumption experienced a 6 percent decline in July, marking the first month of the current fiscal year. Comparatively, consumption remained stable on a month-on-month basis in July 2023 when compared to the previous month.
An unnamed official from the Petroleum Division expressed concern about the potential further drop in consumption, which might jeopardize the government’s ability to meet its budgeted targets.
However, in such a scenario, the government plans to increase PL to the maximum limit of Rs 60 per litre, as per the agreement with the IMF under the Stand By Arrangement (SBA) and a component of the Finance Act 2023-24.
The government anticipates generating Rs 70 billion from PL collections in the current month following increases of Rs 17.50 and Rs 20 per litre in petrol and high-speed diesel (HSD) prices, respectively. As part of the ongoing SBA with the IMF, the government pledged to gradually increase PL to achieve an average rate of Rs 55 per litre during the current fiscal year, resulting in an additional Rs 79 billion.
Presently, the government imposes Rs 55 per litre PL on petrol and Rs 50 per litre on HSD. Any rise in PL on petroleum products is expected to contribute to inflation by increasing transportation costs (both for goods and people) and raising input expenses for various sectors.