Syed Firasat Shah
Pakistan’s Petroleum Levy has quietly transformed from a limited regulatory charge into one of the largest indirect taxation tools in the country.
What was originally meant to support the development and maintenance of oil and gas infrastructure is today being used as a major revenue extraction mechanism from ordinary citizens already crushed under inflation, unemployment and declining purchasing power.
Recently, Hafiz Naeem ur Rehman filed a constitutional petition against the continuous increase in Petroleum Levy (PL), arguing that the government has exceeded constitutional and parliamentary limits while imposing unbearable burdens on the people. The petition has reopened an important national debate: is Petroleum Levy truly a “levy,” or has it effectively become an indirect tax imposed without proper constitutional safeguards?
The distinction is important. In fiscal and constitutional terms, a levy is generally imposed for a specific purpose. It is expected that the amount collected under such a head would be spent on related objectives. Petroleum Levy was historically justified on the grounds of developing upstream and downstream petroleum infrastructure, refinery modernization, energy sector stabilization, strategic reserves, and related oil and gas facilities. Yet, the overwhelming evidence suggests that the money collected is increasingly being diverted toward general fiscal management, debt servicing pressures, and IMF-linked revenue targets rather than petroleum sector development.
According to recent official figures, Pakistan has collected more than Rs1.2 trillion in Petroleum Levy during just the first nine months of the current fiscal year. The full-year target stands near Rs1.47 trillion, while IMF projections indicate that the government may push collections even higher in coming years. This makes Petroleum Levy one of the single largest sources of government revenue outside conventional taxation.
The problem is not merely fiscal. It is deeply social and economic. Petroleum products affect every layer of economic life. When fuel prices rise, transportation costs increase, food becomes more expensive, electricity generation costs rise, and inflation spreads across the economy. The burden falls disproportionately on the poor.
A wealthy individual may absorb higher fuel costs with inconvenience. But for a Bikea rider in Lahore, a delivery driver in Karachi, a taxi operator in Rawalpindi, or a farmer transporting vegetables from rural Sindh, every additional rupee in Petroleum Levy directly attacks daily survival. Many of these workers already operate on razor-thin margins. Their incomes have not increased in proportion to inflation. Fuel hikes therefore translate into reduced meals, inability to pay school fees, delayed medical treatment, and growing indebtedness.
The government deserves appreciation for making slight reductions in fuel prices during recent weeks. However, these reductions remain far from sufficient because the underlying Petroleum Levy burden continues to remain extraordinarily high. In many cases, the international market does not account for the full rise in local prices; instead, a substantial portion comes from domestic levies and taxation. Public frustration therefore continues to grow.
Globally, many countries facing economic stress have attempted to reduce fuel burdens in order to sustain economic activity and prevent slowdown. Several Gulf countries maintain relatively low fuel costs because they understand the direct relationship between affordable energy and economic productivity. Even during global crises, governments often temporarily reduce petroleum taxes to protect consumers and stimulate economic resilience.
Pakistan, unfortunately, appears to be moving in the opposite direction. Instead of using periods of regional stress and economic uncertainty to negotiate relief measures with international lenders, authorities have continued increasing the levy burden. Ironically, moments of geopolitical instability often provide governments leverage in negotiations with institutions such as the IMF. The Gulf conflict and broader regional uncertainty could have been used to seek flexibility and temporary relief for consumers. Instead, the state transferred additional stress onto ordinary Pakistanis.
Reports further suggest that the IMF is encouraging additional increases in Petroleum Levy while also pushing for expanded gas levies. Such measures may deepen public resentment and create the kind of social unrest witnessed in several regional countries where prolonged inflation and excessive indirect taxation eventually triggered mass protests.
Another alarming issue is parliamentary surrender of oversight authority. Under the Finance Act 2025, the executive effectively acquired extraordinary flexibility to raise Petroleum Levy beyond previously understood limits. Critics argue this undermines parliamentary sovereignty because taxation authority fundamentally belongs to the people through their elected representatives. Parliament cannot morally or constitutionally abdicate unlimited taxation powers to the executive. Such surrender weakens democratic accountability and distances fiscal decision-making from public scrutiny.
Pakistan already suffers from one of the most regressive taxation structures in the region. Instead of broadening direct taxation on wealth, real estate speculation, untaxed sectors, and elite privileges, the easiest route has repeatedly been chosen: extracting money from fuel consumers. This approach punishes productive economic activity and disproportionately harms lower and middle-income citizens.
The Petroleum Levy debate is therefore no longer only about fuel pricing. It is about constitutional governance, parliamentary authority, economic justice, and the survival of ordinary Pakistanis struggling under historic inflationary pressure. A state cannot indefinitely balance its books on the broken backs of the poor.
The government must revisit the entire Petroleum Levy framework, restore parliamentary oversight, transparently disclose how collected funds are spent, and ensure that relief reaches the people who need it most. Otherwise, economic frustration may gradually evolve into a wider crisis of public trust.
