Haseeb Ahmed Khan
Pakistan’s Oil Marketing Companies have released their April data, and the numbers tell a story that goes far beyond ordinary market fluctuations. Sales dropped seven percent compared to the same month last year, and six percent from March 2026 alone. The immediate cause is not difficult to identify: global oil supply chains have been severely disrupted by the ongoing conflict in the Middle East, pushing prices upward across international markets. When prices rise, consumers pull back. That is an elementary truth of economics. But what the April figures quietly expose is something far more troubling than a seasonal dip in petrol consumption.
The burden of higher oil prices on ordinary Pakistani households is real and painful. Working families spending a greater share of their income on fuel have less left for food, medicine, children’s education and all the other necessities that define a dignified life. This human cost deserves acknowledgment. Yet the more alarming dimension of this crisis is institutional rather than personal. It concerns how successive Pakistani governments have come to depend, with increasing intensity, on the petroleum levy as their preferred instrument for raising revenue. This dependence has two faces, and both are troubling.
The first is convenience. The petroleum levy is extraordinarily easy to collect. Unlike income tax, which demands documentation, enforcement capacity and a willingness to confront powerful interests, the petroleum levy is embedded silently at the pump. Every litre sold automatically yields revenue. No litigation, no evasion, no complicated audit trail. For a government perpetually under fiscal pressure, this simplicity is enormously tempting.
The second face is constitutional opportunism. Despite functioning in practice as a sales tax, the petroleum levy is deliberately classified outside the divisible pool, which means it is never shared with the provinces. The federation keeps every rupee. This arrangement contradicts both the spirit and logic of Pakistan’s federal compact, which was supposed to ensure that provinces receive a fair share of nationally collected revenues to fund their own services and governance. When the government earns through what is effectively a consumption tax but retains all of it centrally, it is not merely bending a rule. It is structurally starving provincial governments while presenting the levy as something other than what it truly is.
The political sensitivity of this arrangement became dramatically visible in April 2026. The government issued a presidential ordinance abolishing the Fifth Schedule of the Petroleum Products Ordinance of 1961, which had placed a legal ceiling on how high the levy could be raised. With that cap removed, the only remaining constraint on the levy is public anger. That is precisely why Prime Minister Shehbaz Sharif reduced the levy to eighty rupees per litre after a decision announced on the second of April had initially set it far higher. It was not a policy reconsideration born of principle. It was a retreat driven by visible popular discontent.
The budgeted collection from the petroleum levy for the current fiscal year stands at 1,468.3 billion rupees, which represents a twenty-six percent increase over the revised collections of the preceding year. Despite supply disruptions forcing price increases across the board, the government had already collected between 1.234 and 1.33 trillion rupees by mid-April. That figure represents over ninety percent of the annual target, with more than two and a half months still remaining in the fiscal year. Final collections will almost certainly exceed the original budget. Against this backdrop, one question demands an honest answer: why did the government consider it appropriate to more than double the levy, from eighty rupees per litre to approximately one hundred and sixty rupees, in early April?
The answer lies in what is happening elsewhere in the fiscal architecture. The Federal Board of Revenue had budgeted to collect fourteen trillion rupees this year. It is currently running a shortfall of 683 billion rupees for the period from July through April 2026. With two months remaining, that gap is expected to widen further as lower imports and reduced consumer spending, both consequences of the Middle East conflict, continue to suppress tax revenues. The pressure on the government is, by all accounts, immense. Pakistan is locked into an exceptionally rigid IMF programme with harsh upfront conditions, and the Fund’s patience for shortfalls is limited. Contingency revenue measures, reportedly agreed with the IMF in advance, are waiting in reserve, and the moment for their activation may be approaching.
In this atmosphere of fiscal desperation, it is not difficult to understand why the government reached again for the petroleum levy. It is the path of least institutional resistance, the low-hanging fruit that requires no structural reform, no political confrontation with wealthy non-taxpayers, and no difficult negotiation with entrenched business lobbies. Raising direct taxes, which are grounded in the principle of ability to pay, demands exactly those confrontations. Broadening the tax net to include the vast informal economy and undertaxed sectors demands sustained administrative effort and political will. Neither comes easily to governments managing week to week under programme conditionality.
The Chairman of the Federal Board of Revenue convened an urgent internal meeting on the fourth of May to examine new revenue mobilisation options. The urgency itself speaks volumes. What Pakistan genuinely needs, and what has been consistently recommended by serious economic voices, is a sustained reduction in non-essential current expenditure. Not cuts to the development budget, which governments routinely slash mid-year to meet IMF targets in a manner already factored into budget projections, but genuine compression of the bloated recurrent spending that feeds patronage rather than services. Such a reduction would ease borrowing pressures, create fiscal space and, critically, give the FBR time to build a tax system that is fair, equitable and capable of standing on its own foundations.
Until that reckoning arrives, the petroleum levy will remain what it has become: not a policy instrument, but a political crutch.
