The federal government is set to introduce a 3–5 percent General Sales Tax (GST) on petroleum products in the upcoming fiscal year, aiming to support domestic oil refineries and maintain stability in the supply chain.
This decision was taken by the Economic Coordination Committee (ECC) on May 13, 2025, and later approved by the Federal Cabinet on May 20, according to the Business Recorder.
Currently, petroleum products are exempt from GST under the Finance Act 2024-25, resulting in an estimated Rs. 34 billion in unadjusted input tax claims for FY2024-25 — a cost that cannot be transferred to consumers due to regulated fuel pricing.
To address this, the Petroleum Division, in collaboration with the Ministry of Finance and FBR, has proposed the imposition of 3–5% GST on motor spirit (MS) and high-speed diesel (HSD) via the Finance Act 2025.
A full 18% GST was ruled out, as it would have caused fuel prices to rise by Rs. 45 per litre and would require prior IMF approval.
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Meanwhile, to provide short-term relief, the ECC approved recovery of unadjusted tax claims through the Inland Freight Equalization Margin (IFEM) starting May 16, 2025, until FY2025-26. The recovery rate will be Rs. 2.09 per litre on HSD and Rs. 1.07 per litre on petrol.
To further bolster the supply chain, the ECC also approved:
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An increase in Oil Marketing Companies (OMC) margins by Rs. 1.13 per litre
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An increase in dealer margins by Rs. 1.40 per litre
These changes are expected to have a cumulative impact of Rs. 4.12 per litre on fuel prices.
