Pakistan’s diesel price has reached Rs403.32 per litre, and this is not simply a story about an expensive fuel. It is a story about governance. When an essential input for agriculture, transport, industry and trade reaches such a high price while the government simultaneously collects trillions of rupees through petroleum levies, taxes and duties, the question is no longer only why diesel has become expensive. The real question is whether Pakistan’s economic governance is protecting productive activity or balancing its finances by continuously transferring the burden to its citizens.

The regional comparison is deeply disturbing. Diesel in India is reportedly around Rs276 per litre and in Bangladesh around Rs260 when converted into Pakistani rupees. If these comparisons are accurate, Pakistan’s diesel price is dramatically higher than those of two major regional economies.

This should compel the government to explain why Pakistani consumers are being forced to pay such a heavy price for an essential commodity that affects almost every aspect of economic activity.
As of September 12, the official price of high-speed diesel is Rs403.32 per litre. The Petroleum Development Levy alone is Rs80 per litre, while a Climate Support Levy of Rs5 is also being charged. Customs duty on HSD is Rs15.68 per litre, while other charges and margins add further to the final price.

This is where the issue becomes much larger than the price of diesel itself. Petroleum levy collections reached Rs1.567 trillion during FY2025-26, exceeding the original budget target. For FY2026-27, the government has set another ambitious petroleum levy target of approximately Rs1.676 trillion.
But here is the question that the government must answer: where does this enormous amount of money actually go, and who are its ultimate beneficiaries?

The petroleum development levy is federal non-tax revenue. Unlike taxes forming part of the NFC divisible pool, the levy is retained at the federal level. This means that consumers throughout Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan pay it whenever they purchase petroleum products, while the levy itself is not distributed among the provinces through the NFC mechanism.

The government therefore owes the public a much clearer explanation. More than Rs1.5 trillion was collected through the petroleum levy in one financial year. The public has a legitimate right to know how this money contributes to federal expenditure. How much ultimately supports debt servicing? How much contributes to defence, administration, subsidies, development expenditure and other federal obligations? Who ultimately benefits from this enormous collection—the consumer who pays it, the federal government, particular sectors, or the overall national budget?
These questions should not disappear inside thousands of pages of budget documents.

The scale of federal expenditure makes this question even more important.
The FY2026-27 federal budget provides Rs8.054 trillion for interest payments, Rs3 trillion for defence affairs and services, and Rs17.495 trillion for total current expenditure. Petroleum levy revenue is therefore part of a much larger fiscal framework, and citizens deserve transparency about how such revenues contribute to meeting the government’s overall financial obligations.
Diesel is not an ordinary consumer product. It is an economic input. Farmers use it to operate tractors, harvesters and tube wells. Trucks and buses depend on it for transportation. Construction machinery, generators, logistics networks and numerous industrial activities are directly or indirectly dependent on diesel. When its price rises to Rs403.32 per litre, the cost does not stop at the fuel station. It travels through the entire economy and eventually reaches the consumer through higher food prices, transportation costs, construction costs and the prices of almost every commodity.

This creates a dangerous economic contradiction. The government collects more revenue by increasing the burden on petroleum consumers, but the same policy increases production and transportation costs, weakens purchasing power, raises inflationary pressure and makes Pakistani products less competitive. In other words, the state may collect more from one side while simultaneously weakening the economic base from which future revenues must come.

There is also a serious need for transparency in petroleum pricing. If the frequently cited estimate that a substantial share of diesel is produced domestically is correct, the government should publish a complete and easily understandable pricing formula showing how refinery economics, import costs, taxes, levies, margins and other charges combine to produce a retail price of Rs403.32. The public should not have to rely on fragmented information to understand why an essential economic input has become so expensive.

Good governance is not simply the ability to collect more revenue. It is the ability to raise sustainable revenue without destroying production, employment, exports and the purchasing power of citizens. A responsible government must control unnecessary expenditure, improve institutional efficiency, reduce leakages, reform loss-making public-sector organisations and create conditions in which businesses can produce and invest. Continuously increasing taxes and levies is the easiest part of economic management; creating an efficient, productive and competitive economy is the real test of governance.

This bleak picture of governance clearly and loudly establishes one uncomfortable reality: the present government appears unable to manage the economic situation effectively. When the state repeatedly increases the burden on citizens through petroleum levies, taxes and duties, while the economy struggles with inflation, unemployment, debt, weak purchasing power and declining productive capacity, it reflects not merely a revenue problem but a serious failure of governance. A government that cannot control expenditure, improve efficiency, protect productive sectors and ensure transparency in the use of public revenues cannot expect to restore economic stability simply by extracting more money from its citizens.

Pakistan’s economic decline cannot be reversed merely by imposing another levy, increasing another tax or borrowing another billion dollars. The country needs a fundamental correction in governance across ministries, departments, regulatory institutions and public-sector organisations.

Governance is the backbone of the economy. Without competent institutions, transparency, accountability, expenditure discipline and policies based on production rather than extraction, even the most ambitious revenue targets will only deepen the burden on ordinary citizens.
Diesel at Rs403.32 per litre is therefore not merely a fuel-price crisis. It is a warning about the direction of Pakistan’s economic management. A country cannot tax its way out of a governance crisis.

The government must reduce unnecessary burdens, make petroleum pricing transparent, explain where trillions in levies are going, reform public expenditure and restore confidence in the institutions responsible for managing the national economy. Until that happens, every additional levy collected from the people will risk becoming another reminder that Pakistan’s real crisis is not a shortage of revenue—it is a failure of good governance.

Dr Alamdar Hussain Malik
Advisor Academics, University of Veterinary and Animal Sciences (UVAS), Swat.
Former Financial Adviser, Finance Division, Government of Pakistan