A proposal currently under government examination suggests gradually reducing the Petroleum Levy (PL) to Rs 5-10 per litre and replacing the resulting federal revenue gap, estimated at around Rs 1.45–1.50 trillion annually, through a combination of additional taxation, withdrawal of exemptions, stronger enforcement and expenditure savings. Importantly, this remains a proposal under consultation and is not an approved government policy.
The suggested replacement measures are wide-ranging. These include higher FED and regulatory duties on luxury consumption, additional taxation of large corporations and ultra-high-income individuals, rationalisation of tax exemptions, stronger agriculture and wealth taxation, carbon-related levies, greater documentation of the retail sector and technology-driven detection of tax evasion. The proposal also envisages using data from banks, utilities, travel, property and point-of-sale systems to strengthen tax enforcement.
There is, however, an important fiscal complication. Petroleum Levy is non-tax federal revenue, whereas most FBR taxes are shared with provinces under the NFC Award. Replacing one rupee of PL may therefore require considerably more than one rupee of additional FBR collection to preserve the federal government’s fiscal position. This distinction, together with IMF commitments and provincial jurisdiction over agriculture and property taxation, means that any eventual replacement of PL would require much more than simply introducing another tax.