Islamabad: New documents from the Petroleum Division have shed light on how much tax the government collects on every liter of petrol and diesel, confirming that a substantial portion of fuel prices is made up of levies and duties.
According to the official breakdown, the government charges Rs. 94.89 per liter of petrol and Rs. 95.35 per liter of diesel in taxes. This means that taxes account for 36% of the retail price of petrol and 35% of the retail price of diesel, placing a heavy burden on consumers who are already struggling with record inflation.
Tax Composition on Petrol
The documents specify the exact components of the tax on petrol:
- Customs Duty: Rs. 14.37 per liter
- Petroleum Levy: Rs. 78.02 per liter
- Climate Support Levy: Rs. 2.50 per liter
This totals Rs. 94.89 per liter purely in taxes, before the inclusion of international import costs, refinery margins, and dealer commissions.
Tax Composition on Diesel
For diesel, which is widely used in transport, agriculture, and industry, the tax structure is slightly different:
- Customs Duty: Rs. 15.84 per liter
- Petroleum Levy: Rs. 77.01 per liter
- Climate Support Levy: Rs. 2.50 per liter
This adds up to Rs. 95.35 per liter, making diesel marginally more heavily taxed than petrol.
Why It Matters
Fuel prices are one of the biggest drivers of inflation in Pakistan because they directly impact transportation, electricity generation, and agricultural production costs. Higher fuel taxes quickly translate into increased prices of essential goods, from vegetables to manufactured products. Economists argue that while the government depends on petroleum levies as a key source of non-tax revenue, the burden falls disproportionately on the public, especially lower- and middle-income groups.
The Petroleum Levy (PL) alone makes up the largest share of these taxes. Over the past year, the government has steadily increased PL to meet fiscal deficit targets and commitments made to the International Monetary Fund (IMF). By law, the government is allowed to charge up to Rs. 60 per liter as PL, but in practice, the effective rate is much higher when combined with other charges.
Public Reaction
News of the high tax rates has sparked renewed criticism from citizens and business groups. Many argue that with international oil prices fluctuating, the government often keeps pump prices high by adjusting taxes rather than passing relief to consumers.
Small transport operators, in particular, have voiced concerns that high diesel costs are crippling for their businesses, while farmers say higher diesel prices raise the cost of running tube wells and tractors, directly impacting food production.
Government’s Justification
The government defends these levies as essential for revenue generation, pointing out that petroleum taxes are one of the most reliable and immediate sources of income for the national exchequer. Unlike income or sales tax, which can be evaded, fuel levies are collected directly at the source and are almost impossible to avoid.
Officials also argue that the Climate Support Levy, although small compared to other charges, is meant to fund environmental initiatives and Pakistan’s efforts to mitigate the impacts of climate change. However, critics claim that the public has seen little evidence of such funds being utilized effectively.
Conclusion
The latest breakdown confirms what many already suspected: a significant portion of fuel prices in Pakistan is not determined by global crude markets alone but by the government’s heavy reliance on petroleum taxation. With nearly one-third of the retail price of fuel made up of taxes, the debate over whether the government should reduce levies to provide relief—or maintain them to stabilize public finances—remains one of the most pressing economic issues facing the country today.
