The Federal Board of Revenue (FBR) is considering lowering the sales tax rate on petroleum products by 3 to 5 percent in order to address the revenue deficit for the fiscal year 2024-25.
During budget talks for 2024-25, the prime minister rejected the suggestion to impose an 18 percent sales tax on petroleum, citing concerns over inflation and the immediate financial strain on the public.
According to a report by ProPakistani with reference of sources suggests that while the proposal to reduce the sales tax rate on petroleum products is still under review, it remains a viable option to generate revenue in the later part of 2024-25.
The FBR has informed the IMF that emergency revenue measures are not required by the end of the first quarter of 2024-25, stating that it is too early in the fiscal year to take such actions.
The Finance Act 2024 has reclassified motor spirit (petrol), high-speed diesel, kerosene, and light diesel oil (LDO) from taxable supplies to exempt from sales tax, which is expected to boost revenues by Rs. 18-20 billion.
Refineries and oil marketing companies are calling for the government to reverse the change made by the Finance Act 2024, warning that it could disallow up to 80-85 percent of input tax, raising operating and project costs.
The FBR’s Tax Expenditure Report-2024 reveals 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 POL products sector, particularly motor spirit (petrol), high-speed diesel oil, kerosene, and light diesel oil, which together made up 43.99 percent of total sales tax expenditure.
This 98.66 percent increase is due to the comparison between sales tax data for the first five months of 2021-22 and the full 2022-23 fiscal year, after the 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.
