Government Mulls Fuel Levy Hike for Gas Sector
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Pakistan Considers Fuel tax Hike to Address Gas Sector Debt
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The Pakistani government is exploring increasing taxes on petroleum products as a means to manage a ballooning gas sector circular debt exceeding Rs3 trillion, while simultaneously avoiding a direct increase in gas tariffs for consumers.
The Gas Circular debt Crisis
Pakistan’s gas sector is grappling with a circular debt exceeding Rs3 trillion (approximately $10.7 billion USD as of January 3, 2024, using an exchange rate of 280 PKR/USD).this debt includes late payment surcharges and represents a significant strain on the national economy.The government, under the direction of Prime Minister Shehbaz Sharif, has opted to avoid a direct increase in gas tariffs, despite recommendations from the Oil & Gas Regulatory Authority (Ogra).
Ogra had determined a potential tariff increase of up to 7% (Rs118 per unit) to address a revenue shortfall of Rs886 billion for the fiscal year 2025-26. however, the government has 40 days to decide on this increase, and the Minister of Petroleum, Ali Pervaiz Malik, has stated that no increase will be implemented for the next six months.
Shifting the Burden: Petroleum Levy as a Solution?
Instead of raising gas tariffs, the government is considering increasing the petroleum levy - a tax on gasoline and diesel - by Rs5 per litre. this move aims to generate revenue to cover the gas sector debt. The Minister deflected direct questions regarding this proposal during a meeting of the National Assembly’s Standing Committee on petroleum,suggesting a separate briefing woudl be arranged.
This strategy is notable given the broader context of petroleum levy increases. The government has consistently raised the levy, currently at Rs82 per litre, citing justifications such as subsidies for power consumers and infrastructure development in Balochistan. The petroleum levy has become a significant source of general revenue for the central government.
The disparity in consumer base is also a key factor. Onyl approximately 10 million households are connected to the gas network, while almost the entire population relies on petrol and diesel for transportation and other needs. This means the burden of a petroleum levy increase will be widely distributed.
Data: Petroleum Levy rates & Gas Consumption
| Metric | Value (January 2024) |
|---|---|
| Petroleum Levy (Petrol/Diesel) | Rs82 per litre |
| Proposed Petroleum Levy Increase | Rs5 per litre |
| Gas Consumers (Approximate) | 10 million households |
| Gas Circular Debt | Rs3 trillion+ |
| Ogra Recommended Gas Tariff Increase | Up to 7% (Rs118/unit) |
Impact and Implications
Increasing the petroleum levy will likely lead to higher transportation costs, potentially impacting inflation and the prices of essential goods. While avoiding a direct gas tariff hike offers short-term relief to consumers, it shifts the financial burden onto a broader segment of the population. This approach raises questions about the long-term sustainability of the gas sector and the potential for further reliance on indirect taxation.
The government