Pakistan targets record petroleum levy in FY26 budget to boost revenues 

ISLAMABAD: Pakistan’s federal budget for fiscal year 2025-26 proposes a steep increase in the petroleum levy (PL), setting a new maximum limit of Rs90 per litre, up from Rs70 per litre, a move aimed at significantly boosting non-tax revenues.

The government has budgeted Rs1.47 trillion in PL collections from petroleum products, a 26.4 per cent jump from the revised estimate of Rs1.16 trillion for the current year. This also exceeds the initial target of Rs1.28 trillion set for fiscal 2024-25. 

The projected figure surpasses the International Monetary Fund’s forecast by Rs158 billion; the IMF had estimated Rs1.31 trillion in PL receipts for FY26, according to its staff report released on May 17. 

Petroleum levy collections have gained importance over the years as they fall outside the Federal Divisible Pool, allowing the federal government to retain the full amount without sharing it with provinces under the National Finance Commission formula. 

In a parallel effort to broaden the levy base, the government has introduced a new charge on captive power plants operating off the national grid. The National Assembly has passed the “Off the Grid (Captive Power Plants) Levy Bill, 2025,” which starts at 5 per cent and gradually increases to 20 per cent by August 2026. The budget anticipates Rs105 billion in revenue from this measure in FY26. 

Other non-tax revenue measures include a projected Rs2.4 billion from the Gas Infrastructure Development Cess (GIDC), up from Rs1 billion in revised estimates for the current year.  

This remains below the Rs2.5 billion target initially set for FY25. GIDC collections have consistently fallen short since the Supreme Court in 2020 ordered the recovery of Rs407 billion in outstanding dues over five years. Legal challenges and stay orders have stalled much of this recovery. 

The Natural Gas Development Surcharge (GDS), which provinces receive based on the difference between prescribed and sale gas prices, is expected to generate Rs49.4 billion in FY26. This is up from the Rs25.6 billion originally budgeted for the current year and marginally above the revised figure of Rs48 billion. 

The petroleum levy on liquefied petroleum gas (LPG) is projected at Rs5 billion in FY26, compared to the revised Rs3.16 billion for this year and the initial Rs3.54 billion target. 

The budget also allocates Rs30 billion to be retained as a discount on local crude oil prices, slightly above the revised Rs25 billion for the current year and matching the amount initially budgeted. 

Provinces are set to receive higher royalty payments as well. The budget projects Rs69 billion in crude oil royalty for FY26, up from Rs64 billion in the revised estimate for FY25. However, royalty on natural gas is budgeted at just Rs38 billion—well below the revised estimate of Rs135 billion, and even lower than the original target of Rs103.75 billion for the current year. 

Meanwhile, the windfall levy on crude oil is expected to yield Rs20 billion in FY26, down from the Rs28 billion target for this year. Windfall levy on gas remains unchanged at Rs450 million. 

Overall, the government expects total miscellaneous receipts from oil and gas companies to reach Rs1.89 trillion in the upcoming fiscal year, compared to Rs1.46 trillion in revised estimates and Rs1.53 trillion originally budgeted for FY25. 

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