The federal government is weighing a major cut to the petroleum levy, potentially bringing it down to just Rs5 to Rs10 per litre from current levels, as part of a broader tax reform plan aimed at shifting the revenue burden away from fuel consumers and toward luxury spending, large corporations, and underused tax exemptions.

The proposal, reportedly circulated by the Ministry of Planning to the Finance Ministry, the Federal Board of Revenue, and the State Bank of Pakistan, comes as the petroleum levy has become one of the government’s most politically sensitive revenue tools, directly affecting the price at the pump every time it is adjusted.

How Big Is the Revenue Gap

The government collected roughly Rs1,557 billion from the petroleum levy in the last fiscal year and had projected similar collections of around Rs1,576 billion for the current year. Cutting the levy to Rs5-10 per litre would generate only Rs90 to Rs180 billion annually, leaving a shortfall of roughly Rs1.45 to Rs1.5 trillion that the government would need to recover elsewhere.

To plug that gap, the plan reportedly proposes higher duties on luxury imports and premium travel, additional surcharges on the country’s largest 200 to 300 corporations and highest earners, tighter rules around tax exemptions currently worth over a trillion rupees, and savings from lower government debt-servicing costs as interest rates ease.

What This Could Mean for Consumers

If implemented, a lower petroleum levy would ease some of the pressure consumers feel every time petrol and diesel prices rise, since the levy is a flat per-litre charge added on top of the base fuel cost. Combined with today’s petrol price hike to Rs375.82 per litre, any future levy reduction would provide at least partial relief at the pump.

However, the plan is still at the proposal stage and would require sign-off from the Finance Ministry and coordination with Pakistan’s ongoing IMF programme, which has historically preferred broad-based, predictable levies like the petroleum charge over narrower taxes that are harder to enforce.

Officials have indicated some elements of the plan could be phased in over roughly two years, meaning any relief at the pump is unlikely to be immediate even if the proposal moves forward.