The federal government collected an estimated Rs. 320 billion through the petroleum development levy (PDL) from March-May, according to official estimates and industry calculations, as citizens suffered mounting inflation, economic hardship and uncertainty stemming from regional military tensions.
The surge in levy collections comes despite government claims of providing “relief” to the public, with the hefty fuel prices directly contributing to driving up inflation to double-digit territory after it had remained below 10% for nearly two years. The price surge has added further pressure on household budgets already strained by higher food, utility and transportation costs.
Petroleum levy collections are estimated to cross Rs. 1.487 trillion by the end of FY26, surpassing the official target of Rs. 1.468 trillion, and significantly exceeding the previous year’s collection of Rs. 1.220 trillion. Imposed on petrol and diesel, the levy is now among the federal government’s largest sources of non-shareable revenue, enabling it to paper over deficiencies in tax collection.
Burdening citizens
The boost to petroleum levy collections accelerated during the final months of the fiscal year, coinciding with heightened geopolitical tensions in the region, particularly the Iran-U.S. war. Market analysts noted the government had preferred to retain the financial benefit of any decline in global crude oil prices rather than passing on the full relief to consumers, adding this helped strengthen federal revenues but effectively shifted a greater burden onto consumers even as inflationary pressures mounted.
Rising inflation, the full impact of which is anticipated in the coming months, has effectively negated the government’s narrative of economic stabilization and consumer relief, especially as it nears the halfway point of its five-year term.
Revenue target
By the end of May, the government is estimated to have collected around Rs. 1.390 billion in petroleum levy revenues, with the full fiscal year’s total projected to hit Rs. 1.487 trillion if current trends continue through the end of June. This exceeds the government’s budgeted annual target by nearly Rs. 19 billion, providing additional fiscal space ahead of the federal budget for the coming fiscal year.
The levy, per officials, is now seen as a critical source of revenue because its full proceeds remain with the federal government and are not part of divisible taxes shared with provinces.
However, industry insiders have warned that sustaining this revenue growth could prove difficult, as fuel smuggling continues to erode legitimate petroleum sales. Recent estimates suggest 5,000-8,000 metric tons of smuggled diesel are entering Pakistan daily through its western border, reducing sales by licensed oil marketing companies and lowering potential tax collections.
According to available data, diesel sales fell 34% year-on-year in May despite the peak harvesting season, while petrol sales also declined, raising concerns about the scale of illicit fuel trade. If this trend persists, especially as the government continues to maintain prices artificially inflated with the levy, future targets are likely to fall short even if the levy is further increased.
It is likely that the PDL would be among the key issues debated during budget discussions, as policymakers seek additional resources to narrow the fiscal deficit while balancing demands for consumer relief.
Economists argue that while petroleum levies have helped stabilize government finances, continued reliance on indirect taxation risks placing a disproportionate burden on ordinary citizens already grappling with inflation and declining purchasing power.