By SKM
May 15, 2025
ISLAMABAD: After consultation with the Prime Minister, the government authorities have increased the IFEM (Inland Freight Equalization Margin) by Rs1.87 per liter for next 12 months to cope with the Rs 34 billion losses refineries and oil marketing companies (OMCs) will brave till June 30, 2025.
The refineries and OMC braved a huge loss because of the sales tax exemption on petrol, diesel, kerosene oil and light diesel oil—- a budgetary measure taken in the finance bill for FY25. This measure has not only made upgrade projects valuing $6 billion unviable but also increased the operational cost of refineries and OMCs because of no input sales tax adjustments.
“However, the Premier has deferred the hikes in OMCs margin by Rs1.13 per liter and Dealers margin by Rs1.12 per liter. The increase in IFEM will be adjusted in the relief from May 16, 2025 on account of reduction in POL prices in the international market,” a senior official told The News.
The ECC meeting that was held on May 13 endorsed the hike by Rs4.12 per liter in principle as was suggested by the Petroleum Division, but it was decided that the final decision would be taken once the Prime Minister gives his nod. Now the Prime Minister has agreed to increase the hike in IFEM for next 12 months to cope with the loss refineries sustained in the whole current FY25, but sought more consultation on increasing OMCs and dealers’ margin.
More importantly, the ECC meeting has also increased the cap or ceiling of the Petroleum Levy up to Rs90 per liter. The Petroleum and Finance divisions have been authorized, to this effect, to take the decision but both divisions would have to seek a positive nod from the Prime Minister if the Petroleum Levy increase is needed in the future. Earlier upper cap for Petroleum Levy was set at Rs70 per which was increased to the existing Rs78.02 per liter. The petroleum levy on petrol stands at Rs78.02 and on high-speed diesel it stands at Rs77.01 per liter. Now the upper cap has been set at Rs90 per liter by the ECC.
The government earlier increased the Petroleum Levy by Rs10 from Rs60 to Rs70 per liter and the revenue to be collected in this head will be used to reduce the electricity tariff by Rs2.12 per liter. After that, the government again increased the PL on petrol by Rs8.02 to Rs78.02 per liter and on diesel by Rs7.01 to Rs77.01 per liter to fund N-25, a national high from Chaman to Karachi in Baluchistan.
The Petroleum Division in the summary proposed to ECC the hike in Internal Freight Equalization Margin (IFEM) by Rs1.87 per liter for refineries and OMCs margin by Rs1.13 per liter to help recover Rs34 billion loss in the next 12 months. Refineries and OMCs are facing perpetual losses just because of the sales tax exemption on petrol, high speed diesel, kerosene oil and light diesel oil (LDO)—a measure imposed in the finance bill for FY25.
This measure has not only halted the upgrade projects of refineries valuing $6 billion, but also increased the operation costs of the refineries. OMCs are also facing losses mainly because of the sales tax exemptions. Out of Rs4.12 per liter increase, Rs3 per liter has been increased to cope with the estimated loss of Rs34 billion to be incurred till June 2025 from July 2024. In the Rs3 per liter hike, Rs30 paisas are also included which will help digitize, document or carry out the track and trace for the volume of POL products during transportation from refineries, tanks, depos to petrol pumps. The volume of POL products will be tracked and traced through censors to be installed starting from storages of refineries, tanks, depos to under-ground tanks in petrol pumps. This will also help erase the DABBA petrol pumps involved in selling the smuggled POL products. This step would also do away with the misuse of IFEM by the unscruplous elements.
On the issue of tacking the sales tax exemption issue, the official said that the Finance Ministry is working on some options which include imposition of 5 percent sales tax on POL products with impact of increase in petrol and diesel price by Rs12 per liter, but IMF in the recent past did not agree saying the sale tax should be at 18 percent, but it would hike price of petrol and HSD each by Rs45 per liter. Finance Ministry had been asked by the IMF, if petrol and HSD price increase by Rs45 per liter, then petroleum levy of Rs45 per liter can be reduced, by finance ministry did not buy the IMF argument as revenuer through PL rests with the federal government but the revenue to be collected through sales tax would be shared with the provincial governments.
However, this time the finance ministry is most likely to end the sales tax exemptions on POL products from the budget for FY26 and may retire the zero-rated status for refineries. This step will resolve the issue of refineries, but will not solve the issue of OMCs. So hybrid arrangement may be worked out to accommodate both refineries and OMCs when it comes to the issue of sales tax exemption for the next budgetary year. Ends
