No relief in petrol costs despite decline in global oil prices

The federal government has decided to withhold the full extent of relief from users by keeping petrol prices unchanged. According to reports, this marks the third time in the past two months that the government has taken not transferred the reduction in global prices to domestic users. 

Petrol prices remain untouched at Rs252.63 per liter despite the creation of room to pass relief to consumers. Islamabad decided to raise the Inland Freight Equalization Margin (IFEM) on petroleum products by Rs1.87 per liter to plug the losses that were sustained by the oil industry. 

As per reports, refineries and oil marketing companies’ (OMCs) losses amount to a staggering Rs34 billion which were reportedly incurred because of a ‘tax loophole’ that existed in the Finance Bill 2024-25.

Since the finance act labelled petroleum products as exempt, those in the oil sector could no longer claim the sales tax amount which they had paid to acquire their inputs. This caused oil companies to suffer financially.

However, the IFEM is not a permanent charge as the Petroleum Division has suggested that the financial losses, amounting to Rs34 billion can be recovered within 12 months. If this is true, the charge may be removed in just a year.

However, the price of high speed diesel (HSD) has recorded a drop or Rs2 per liter, despite the higher IFEM, and will remain unchanged for the next two weeks. After witnessing a drop in prices, the ex-depot price of HSD sits at Rs254.64 per liter, slightly lower than its price of Rs256.64 prior to the revision.

Currently, the government charges approximately Rs78 per liter under the petroleum development levy. This is to be charged on both petrol and HSD, significantly raising the price of the commodity for consumers.

The federal government does not charge consumers any general sales tax (GST) on petroleum products. However, the government does charge a customs duty of Rs17 per liter on HSD and petrol. 

Put together, the government extracts approximately Rs96 in revenue from each liter of petrol sold. Fuel suppliers and distributors tack on an additional 17 rupees per liter as markup.

Reports have outlined how the government has blocked a Rs18 per liter drop in fuel prices to deter the general public from purchasing petroleum while simultaneously raising government revenues.  With HSD and petrol sales averaging about 750,000 tons per month, both commodities bring in a significant amount of revenues for the national exchequer.