FBR says the new Rs80-per-litre Federal Excise Duty aims to prevent the misuse and unlawful mixing of petroleum products not subject to the Petroleum Development Levy.
ISLAMABAD, September 15, 2026: The Federal Board of Revenue (FBR) has justified the imposition of Federal Excise Duty (FED) of Rs80 per litre on certain petroleum products for Tax Year 2027, saying the measure is aimed at preventing the misuse of differences in petroleum taxation.
The FBR explained the rationale in Federal Excise Circular No. 1 of 2026, issued to clarify major amendments to the Federal Excise Act, 2005 introduced through the Finance Act, 2026.
According to the tax authority, petroleum products are subject to the Petroleum Development Levy (PDL). However, petroleum top naphtha, white spirit/mineral turpentine oil (MTT) and solvent oil are not subject to PDL.
The FBR said certain unscrupulous elements had exploited this difference by mixing these products with petroleum products liable to PDL and selling the resulting products at higher prices.
To curb the practice, the government has imposed FED at Rs80 per litre on petroleum top naphtha, white spirit/mineral turpentine oil and solvent oil. The duty will be collected through the sales tax mechanism.
The FBR said the measure is intended to prevent the misuse of non-PDL products and stop their unlawful mixing with petroleum products subject to the levy.
Relief mechanism for industrial users
The FBR has also introduced a mechanism to protect industries that legitimately use these products as industrial inputs.
Under the mechanism, certain persons or classes of persons may be excluded or exempted from FED, subject to prescribed conditions.
The relief is available where the final product is exempt from sales tax, or where both the supplier and manufacturer are integrated with the FBR’s computerised system for the issuance of digital invoices.
The FBR said any exclusion or exemption will remain subject to the conditions prescribed under the relevant provisions of the law.
FBR targets misuse while protecting genuine users
The revised measure seeks to distinguish between legitimate industrial consumption of petroleum products and their misuse for blending with products liable to the Petroleum Development Levy.
By imposing FED on specified non-PDL products while allowing conditional relief for genuine industrial users, the FBR aims to address potential revenue leakage without imposing the additional burden on qualifying industrial consumption.
The clarification forms part of the broader amendments introduced through the Finance Act, 2026 for Tax Year 2027, which seek to strengthen tax enforcement and curb practices that could result in the loss of government revenue.