Sales Tax on Petroleum Products Likely from December

The Federal Board of Revenue (FBR) is set to impose a sales tax on petroleum products from next month keeping in view the petroleum levy’s (PL) maximum upper limit of Rs. 50 imposed on petrol.

Sources told ProPakistani that the FBR is expected to impose a lower rate of sales tax on petroleum products in December to maintain the prices at current levels in case the prices come down globally. The sales tax on petroleum products would be increased in a phase-wise manner.

The rates of sales tax on petroleum products, effective from February 1, 2022, were reduced to zero through notification SRO 321(I) 2022 issued under section 3 of the Sales Tax Act, 1990, which empowers the federal government to notify sales tax at a rate higher or lower than the standard rate of 17 percent.

Under the Finance Act 2022, the government allowed itself to raise the petroleum levy limit from Rs. 30 per liter to Rs. 50 per liter.

Recently, the Economic Coordination Committee (ECC) of the Cabinet had deferred FBR’s proposal seeking the imposition of a 17 percent sales tax on High Octane Blending Component (HOBC) and RON-97.

FBR has been facing a revenue shortfall, therefore, it proposed to impose a 17 percent sales tax on HOBC and RON-97, arguing that the petroleum sector is one of the major contributors to revenue and distortion in its tariff regime puts tremendous pressure on FBR’s efforts to achieve its revenue targets.

It has also been agreed with the International Monetary Fund (IMF) in the seventh and eighth review of the Extended Fund Facility (EFF) that the government would take contingency measures to keep revenue collection on target and increase the rate of GST on fuel as a prelude to reaching the standard rate of 17 percent is one of such contingency measures.

However, the FBR proposal to impose a 17 percent sales tax on HOBC and RON-97 petrol, which are luxury goods consumed by rich consumers in expensive vehicles, was not approved. The revenue impact was estimated at around Rs. 6 billion in the remaining period of the current fiscal year.

The FBR added that to protect the general public from the inflationary impact of an across-the-board increase in GST on all POL products, it is proposed that the sales tax rate may be enhanced from zero to 17 percent on HOBC and RON-97 only.