Petrol and diesel prices may rise by Rs45/litre after IMF demand

The International Monetary Fund (IMF) has asked that Pakistan should apply an 18 percent sales tax on petroleum products, which is expected to result in a Rs45 per litre price increase for MS Petrol, High-Speed Diesel (HSD), kerosene oil, and light diesel oil (LDO).

The international lender has also rejected Pakistan’s proposal to impose a 1-2 percent sales tax on petroleum products, insisting on an 18 percent tax instead. This demand has stalled $5-6 billion upgrade projects under the Brownfield Refinery Policy 2023.

Local refineries have raised concerns about increased costs and project delays due to changes in sales tax status. The shift from zero-rated to exempt status has negated a $1.65 billion incentive and could lead to a $1.152 billion loss, alongside a $1 billion annual foreign exchange loss.

The government is currently refraining from fully implementing the IMF’s demand but is considering reducing the petroleum levy by Rs45 per litre from Rs60 and replacing it with an 18 percent sales tax. This adjustment aligns with the IMF’s revenue goals.

Meanwhile, the IMF has also suggested a 15 percent sales tax on essential items like food, but the government has not taken steps in this direction yet.