ISLAMABAD – A fresh tax shock hits Pakistan’s petroleum market, as FBR puts Rs80-per-litre Federal Excise Duty on three petroleum products amid tightening screws on fuel adulteration and target a loophole that allowed cheaper products to be blended with PDL-bearing fuels.
The new duty covers petroleum top naphtha, white spirit/mineral turpentine oil (MTT) and solvent oil and has been applicable since July 1, 2026.
The apex tax collection authority communicated the decision to its field formations through its sales tax budget instructions for 2026-27, explaining that the measure is intended to close a loophole that was being exploited in the petroleum market.
The issue largely stems from the different tax treatment of petroleum products. While major petroleum products are subject to the Petroleum Development Levy (PDL), the three products covered by the new FED were not previously charged the levy.
FBR says some unscrupulous operators took advantage of this gap by mixing these products with PDL-bearing petroleum products and then selling the blended fuel at a higher price. The new Rs80-per-litre FED is intended to remove that incentive and make such adulteration more difficult and costly.
The new duty does not automatically mean that every industry using these products will have to absorb the additional cost.
FBR kept relief mechanism for businesses that use the products as industrial inputs. Certain users may be excluded from the duty if their finished goods are exempt from sales tax. Relief can also apply where both the supplier and manufacturer are connected to the FBR’s computerized system for issuing digital invoices.
FBR added the three products to the relevant provisions of the Federal Excise Act, 2005, through the insertion of Serial No. 65 in Table-I of the First Schedule. They have also been included in the Second Schedule, allowing the duty to be collected through the sales tax mechanism.
FBR has also used the new instructions to highlight a separate challenge facing Pakistan’s refining industry, the need for modernisation. The board says local refineries need to be upgraded to meet modern environmental standards, including requirements for cleaner fuels, better emission controls and lower carbon and sulphur intensity.
Refinery upgrades, however, can involve major spending. Scheduled turnarounds, maintenance and overhauls often require the import of expensive machinery, equipment, parts and other components, which are normally subject to sales tax.
The government has therefore allowed sales tax exemptions on specified items needed for such work, although refineries must obtain prior approval from the relevant division.
Pakistan’s Petrol Levy Explained: The Tax That Could Cost More Than It Raises
