The Federal Board of Revenue (FBR) is considering reducing the sales tax rate on petroleum products by 3 to 5 percent to address the revenue shortfall for the fiscal year 2024-25.
During budget discussions for 2024-25, the prime minister rejected a proposal to impose an 18 percent sales tax on petroleum, citing concerns about inflation and the financial burden it would place on the public.
According to sources cited by ProPakistani, the proposal to reduce the sales tax on petroleum products is still being reviewed, but it remains a possible option to generate revenue later in 2024-25.
The FBR has told the IMF that no emergency revenue measures are needed by the end of the first quarter of 2024-25, stating that it is too early in the fiscal year for such actions.
The Finance Act 2024 has reclassified motor spirit (petrol), high-speed diesel, kerosene, and light diesel oil (LDO) from taxable supplies to sales tax-exempt. This change is expected to increase revenues by Rs. 18-20 billion.
Refineries and oil marketing companies are urging the government to reverse the change, warning that it could lead to the disallowance of up to 80-85 percent of input tax, which would raise operating and project costs.
The FBR’s Tax Expenditure Report-2024 highlights a revenue loss of Rs. 1.25 trillion in 2022-23 due to the sales tax exemption on petroleum products.
The report shows that the largest tax expenditure occurred in the petroleum sector, particularly for motor spirit, high-speed diesel, kerosene, and light diesel oil, which together accounted for 43.99 percent of total sales tax expenditure.
This 98.66 percent increase is compared to sales tax data from the first five months of 2021-22 and the full 2022-23 fiscal year, after these four items were zero-rated from February 1, 2022, under SRO 321(I)/2022.
In 2021-22, the sales tax expenditure for these products over five months totaled Rs. 633 billion, while for the entire 2022-23 fiscal year, it increased to Rs. 1,257.5 billion.
