IMF’s Tax Demand: Pakistan’s Petroleum Prices Set to Surge
The International Monetary Fund (IMF) has urged Pakistan to impose an 18% sales tax on petroleum products, potentially spiking the prices of MS Petrol, High-Speed Diesel (HSD), kerosene oil, and light diesel oil (LDO) by up to Rs. 45 per liter. This demand comes after Pakistan’s proposal for a modest 1-2% sales tax was rejected by the lender.
Potential Impact on Prices
If implemented, the 18% sales tax could result in:
- A Rs. 45/liter price hike across petroleum products.
- Increased operational and project costs for local refineries.
- Higher costs for consumers already grappling with inflation.
Refinery Sector Under Pressure
The Brownfield Refinery Policy 2023, aimed at upgrading local refineries, has been jeopardized by the IMF’s demands. Key challenges include:
- Zero-rated to exempt status for sales tax, leading to:
- A projected $1.152 billion loss for refineries.
- $1 billion annual foreign exchange losses from delayed projects.
- Canceled incentives of $1.65 billion under the ESCROW account.
Government’s Dilemma
While the government has refrained from implementing the IMF’s demand for now, it is exploring alternatives such as:
- Reducing the petroleum levy from Rs. 60/liter to Rs. 45/liter.
- Imposing an 18% sales tax instead to meet revenue goals.
The IMF has signaled its approval for this adjustment, provided it aligns with agreed fiscal targets.
Broader Implications
In addition to petroleum taxes, the IMF has suggested imposing a 15% sales tax on essential items such as food. Although this proposal has not yet been addressed, it highlights the growing fiscal challenges facing Pakistan.
Looking Ahead
With the IMF’s stringent tax demands, Pakistan faces tough decisions to balance economic stability, consumer affordability, and refinery upgrades. The potential fuel price hike underscores the need for sustainable energy and fiscal policies in the long term.
