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Thursday Jun 03 2021
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Pakistan makes last-ditch efforts to convince IMF to slash petroleum levy

A representational image. Photo: File

  • IMF wants Pakistan to fetch Rs600bn under the petroleum levy head. 
  • Pakistan wants to keep the petroleum levy between Rs450-500bn range. 
  • If POL prices in global market change, it won't be possible for Pakistan to maintain unchanged POL prices, says a source. 


Pakistani authorities are making last-ditch efforts to convince the International Monetary Fund (IMF) to slash the petroleum levy target by rs100 to rs150bn in the upcoming budget. 

As per a report in The News, the IMF wants Pakistan to fetch Rs600bn under the petroleum levy head. Hence, it requires the government to keep the levy at Rs30 per litre on petrol and diesel and other POL products for the whole financial year. 

On the other hand, the government had kept petroleum prices unchanged for the month of June and brought down the petroleum levy on motor gasoline to Rs4.74 per litre and Rs8.86 per litre on high-speed diesel sold at retail outlets.

The report states that the government wants to find a middle way with the IMF, as it seeks to keep the petroleum levy and other federal receipts target in the range of Rs450-500bn against the desired target of Rs600 billion that has been set by the IMF.

On the other hand, Islamabad has given assurances to the IMF of generating additional revenue through Non-Tax Revenues (NTR) as spectrum auction would bring in Rs155 billion in the next budget against Rs27 billion estimated for the outgoing fiscal year.

“The Non-Tax Revenue target will be jacked up from Rs1.1 trillion in the outgoing fiscal to Rs1.4 trillion for the coming budget,” said a top official of the Finance Division, adding that the State Bank of Pakistan (SBP) profits, royalty on gas and other receipts would help achieve the desired target on non tax revenue.

The official said that the fixing of petroleum levy has been a "thorny" issue between the government and the IMF, adding that it was expected it would be resolved before the announcement of the budget. 

The government has managed to maintain prices of petroleum products when they stood at $60 per barrel. However, the prices of Arab Light Crude Oil had gone up to $68.4 per barrel on June 2, 2021. 

Now, the government is facing a tough situation where it will have to hike POL prices to bridge the gap of $8.4 per barrel and then increase the petroleum levy, starting from July 1, 2021.

In the last summary tabled before Prime Minister Imran Khan on May 31, 2021, it was proposed to hike the POL prices by Rs2 per litre on average but the premier preferred to keep the prices unchanged at the existing level. The Ministry of Finance had to wait till midnight to make an official announcement that the prices of petroleum products will remain unchanged. 

However, the policy of maintaining the POL prices cannot be kept for an indefinite period, so the government will have to hike POL prices in one jerk probably from the next fiscal year.

“Our discussions are underway with the IMF and we will try to keep the petroleum levy low as much as possible but a lot will depend upon trends prevailing in the international market. If the POL prices decreased in international market, then it will provide cushion to hike the petroleum levy but if it increased, then it will become difficult to pass on the whole burden,” said official sources, who spoke to The News on condition of anonymity. 

The rising inflationary pressures have become a headache for the government, so after passing on increased POL prices, inflation could further escalate. With the possibility of economic revival where the OECD countries were projecting GDP growth close to 5.8% after overcoming COVID-19 pandemic, the POL prices might further increase, so the PTI government must take steps to discourage consumption of petroleum products.