Pakistan’s economy has been under immense pressure from rising inflation, dwindling foreign reserves, and persistent trade imbalances, while households grapple with limited purchasing power. Against this backdrop, the government has increasingly relied on petroleum levy as a major revenue source rather than cutting unnecessary expenditures or reforming inefficient public spending.

Currently, Pakistan collects around rupees 84 per litre as petroleum levy on petrol and roughly rupees 76 per litre on high-speed diesel, making fuel heavily taxed. Added to this are dealer commissions, distribution costs and marketing margins — together contributing another PKR 15–20 per litre — meaning that a large portion of what consumers pay at the pump is government revenue, not the base cost of fuel itself.

The government’s decision in March 2026 to raise petrol prices by approximately PKR 55 per litre, bringing the price to around PKR 321 per litre, sent shockwaves across the economy. This sharp hike — nearly a 20 % increase in a single adjustment — was justified by rising global crude prices amid geopolitical tensions. However, it raises an important policy question: why was the petroleum levy not reduced instead of imposing such an abrupt increase?

To put this into perspective, Pakistan’s per capita GDP is around USD 1,600 (~PKR 450,000), reflecting the limited income and purchasing power of the average citizen. In contrast, India’s per capita GDP is about USD 2,300, Bangladesh’s around USD 2,000, Sri Lanka’s over USD 4,000, and OECD averages exceed USD 45,000 — clearly indicating that fuel taxation affects these economies differently depending on income levels and social safety nets.

Petrol price levels illustrate this disparity: before the recent hike, Pakistan’s pump prices were roughly comparable to regional peers; India’s petrol has varied around ₹94–105 per litre (≈ PKR 230–250) and Bangladesh’s around USD 1.02 per litre. After the hike, Pakistan’s price of PKR 321 per litre far exceeds typical regional levels, even before accounting for inflationary pressures.

In South Asia, while absolute petrol prices may at times be lower than in Europe or North America, the impact on household budgets is far more severe because of lower incomes and higher reliance on petrol for transportation and goods movement. By comparison, in the United States fuel prices generally average around USD 0.70–0.90 per litre (~PKR 100–130) depending on region, and in Europe petrol commonly exceeds EUR 1.60–2.00 per litre (~PKR 450–560) but is borne by much higher average incomes.

Despite these global differences, the key driver of domestic burden in Pakistan is clear: petroleum levy, not just international oil cost.

The government argues that petrol levies are necessary to meet fiscal targets; Pakistan collected over PKR 1.1 trillion through petroleum levy last fiscal year, and the current revenue target is around PKR 1.4–1.5 trillion.

However, passing most of the fuel cost burden to consumers — especially through high levy charges — intensifies inflation and squeezes household budgets already stretched by rising food and transport costs.

A fundamental solution to ease the burden of high petroleum levies lies in rigorous fiscal reform and responsible governance. Pakistan’s total public sector wage bill — including federal, provincial, autonomous bodies, project staff and pensions — is estimated at around PKR 6–7 trillion annually. The government must cut non‑essential expenditures, implement a one-pay-structure across all cadres to rationalize salaries and remove disparities — potentially saving up to PKR 300 billion annually — and right‑size bureaucracies to improve efficiency. Over 50 major state-owned enterprises that continue to drain public resources should be closed or restructured, and positions that have remained vacant for years should not be artificially maintained. Similarly, ghost employees, costing tens of billions annually, must be identified and removed. Furthermore, the progress and performance of dozens of autonomous bodies should be carefully reviewed, with those showing poor performance either closed or merged. Most critically, PSDP (Public Sector Development Program) projects, with an annual allocation of roughly PKR 2.5–3 trillion, must be closely monitored; projects with undefined or negligible progress should be stopped, and the freed funding diverted to projects demonstrating high progress and tangible results. Collectively, these measures could save PKR 400–500 billion annually, enough to substantially reduce reliance on petroleum levies, provide relief to ordinary citizens struggling under rising fuel and living costs, and improve overall economic efficiency. Such reforms are not only a fiscal necessity but a moral imperative to align public expenditure with the nation’s economic realities.

Equally important, Pakistan must prioritize agriculture and livestock production, which form the backbone of its economy. Rising petrol and diesel prices directly increase the cost of irrigation, mechanized farming, transportation, and processing of agricultural produce. This reduces farm profitability and undermines the potential for value addition in livestock products, dairy, meat, and poultry sectors. With proper investment in modern farming techniques, cold chain infrastructure, and agro-processing, Pakistan could increase yields, reduce post-harvest losses, and generate higher export earnings, simultaneously strengthening rural incomes and national food security. By easing the burden of petroleum levies and directing savings toward agriculture and livestock development, the government can transform these sectors into engines of economic growth rather than leaving them vulnerable to rising fuel costs.

The petrol price surge, driven by levy charges, has ripple effects across the economy. Increased fuel costs push up commuter and freight charges, raising transportation costs for goods and services. In agriculture, diesel-powered irrigation pumps, tractors and logistics become more expensive, reducing farmers’ profitability and contributing to higher food prices. In industry, rising energy costs weaken competitiveness, worsening Pakistan’s persistent import-export imbalance.

Petrol pricing in Pakistan is not merely a reflection of global oil prices; it is shaped by domestic policy choices. Currently, over 60–65% of the retail petrol price (~PKR 321 per litre) consists of government levies, including petroleum levy, general sales tax, and other duties, while only about 35–40% represents the base cost of crude, refining, and distribution. In comparison, India’s fuel levies account for roughly 50% of pump price (~PKR 230–250 per litre), Bangladesh around 35–40% (~PKR 250–260 per litre), and in Europe levies contribute 55–60% (~PKR 480–530 per litre) of the total price but are offset by higher per capita incomes (~USD 45,000). The per capita GDP in Pakistan (~USD 1,600) highlights why these high levies disproportionately burden households, translating to higher transport and food costs and pushing up overall inflation by ~0.8–1% for every PKR 50 increase per litre. If Pakistan is to achieve sustainable economic stability, policymakers must recognize that petroleum levy — not crude price — drives the majority of consumer cost at the pump, and reforming levy policy, alongside fiscal and governance measures, is the most effective immediate step to protect households and the economy.

All these measures — fiscal reform, closure or merger of underperforming autonomous bodies, right-sizing, and PSDP project reallocation — can only be effectively implemented if the Office of the Auditor General of Pakistan plays its due role in conducting rigorous audits of government organizations, particularly autonomous bodies.

Transparent and timely audits, together with oversight by the Federal and Provincial Public Accounts Committees (PACs), will ensure accountability, detect inefficiencies, and prevent misuse of public funds, making it possible to channel savings toward reducing the petroleum levy burden, boosting agricultural productivity, and supporting livestock development for sustainable economic growth.

Dr Alamdar Hussain Malik
Advisor Veterinary Sciences, UVAS Swat, Pakistan
Former Financial Adviser, Finance Division, Government of Pakistan