ISLAMABAD:

The government has set an ambitious target for petroleum levy (PL) on petroleum products for the next fiscal year, which would result in denying consumers relief despite a reduction in international oil prices.

The Economic Coordination Committee (ECC) recently increased the maximum cap of petroleum levy to Rs90 per litre.

Keeping in view the higher limit of the petroleum levy, the government has decided to increase the revenue collection target on account of PL on petroleum products.

According to budget documents, the government has raised the petroleum levy collection target by 26% for the next fiscal year.

The government has set a petroleum levy collection target of Rs1,468.395 billion for the upcoming fiscal year. This represents a substantial rise of Rs307.395 billion compared to the current revised estimates of Rs1,161 billion for the ongoing fiscal year. It is also considerably higher than the original budgeted PL target of Rs1,281 billion for the outgoing fiscal year 2024-25.

The PL revenue has been given high priority by successive federal governments as it is not part of the Federal Divisible Pool (FDP) that must be shared with the provinces under the National Finance Commission (NFC) formula.

This is why the government has increased the rate of petroleum levy on petroleum products while maintaining a zero rate of general sales tax, thereby depriving the provinces of revenue collection.

A budgeted target of Rs105 billion has been set through the imposition of a levy on Off-the-Grid (Captive Power Plants) for the next fiscal year. The National Assembly passed the "Off-the-Grid (Captive Power Plants) Levy Bill, 2025." This levy will initially be 5%, increasing to 10% by July 2025, 15% by February 2026, and 20% by August 2026.

The government has also proposed to increase the Gas Infrastructure Development Cess (GIDC) collection to Rs2.4 billion for the next fiscal year, up from the revised current estimate of Rs1 billion. The GIDC was originally budgeted at Rs2.5 billion for the current fiscal year.

The previous Pakistan People's Party (PPP) government imposed this cess to generate revenue meant for building mega oil and gas pipelines. However, the textile industry and other industrial barons obtained stay orders, and the issue was taken up by the Supreme Court of Pakistan during the Pakistan Tehreek-e-Insaf (PTI) government.

In June 2020, the Supreme Court of Pakistan ruled that various sectors of the economy must clear outstanding GIDC payments worth Rs407 billion in instalments, but the government failed to receive payments due to industries obtaining stay orders again.

Natural Gas Development Surcharge (GDS) — the difference between the prescribed and sale price of gas that goes to provinces — has also been projected to bring Rs49.437 billion in revenue next year against the original budgeted Rs25.618 billion and revised Rs48 billion in the outgoing fiscal year.

The government has also envisaged collecting Rs5 billion in PL on Liquefied Petroleum Gas (LPG) in the next fiscal year 2025-26, compared to the revised target of Rs3.156 billion for the current fiscal year. The original budget for the PL on LPG in the current fiscal year was Rs3.537 billion.

The budget for fiscal year 2025-26 also envisages Rs30 billion to be retained as a discount on local crude oil prices. This is higher than the revised estimate of Rs25 billion for the current fiscal year. The original budget for the current year was also Rs25 billion.

The budget for next year also proposes an increase in royalty on crude oil and natural gas for provinces. The budgeted amount for royalty on crude oil is set at Rs69 billion for the next financial year against the revised estimate of Rs64 billion for the outgoing year.

The government budgeted Rs38 billion in royalty on natural gas in the next financial year against a revised target of Rs135 billion and an original budget of Rs103.751 billion in 2024-25.

Next year's budget envisages Rs20 billion on account of windfall levy on crude oil against a budgeted amount of Rs28 billion for the current financial year 2024-25. Windfall levy on gas has been budgeted at Rs450 million, which was also the revised estimate for the current fiscal year.