By SKM
May 14, 2025
ISLAMABAD: The Economic Coordination Committee (ECC) that met on May 13, 20024 (Tuesday) has decided in principle to shift some relief of Rs4.12 per liter to refineries, OMCs (oil marketing companies) and dealers from the reduction in the POL products due from May 16, 2025 for the next fortnight.
The decision to increase POL prices by Rs4.12 per liter will continue for the next 12 months which will be adjusted in the relief in oil prices due from May 16, 2024. This is how the end consumers would pay an additional amount of Rs75 billion in the shape of the hike in Internal freight equalization margin (IFEM), OMCs margin and dealers margin in the next year starting from May 16, 2025, a senior official who attended the meeting told The News.
Three days back, the relief in POL prices for end consumers was estimated at Rs7 per liter which in the last 2-3 days was now reduced to over Rs5 per liter as the price in the international market has started going up. “So the top functionaries of the Petroleum and Finance Divisions after the consultation with the Prime Minister will finalize the decision and notify the next POL prices today (Thursday).
Earlier the government instead of passing relief to end consumers increased petroleum levy for two times; first time for providing a relief to electricity consumers and second time for erecting N-25 national highway in Balochistan.
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 initiation of 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. The dealers’ margin of Rs1.12 per liter has also been endorsed by ECC. This is how in toto Rs4.18 per liter will be hiked. However, this hike will be adjusted in the relief in POL process which is due from May 16, 2025. 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 unscrupulous 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
