In a major revenue-generating initiative, the federal government has set a target of Rs1.47 trillion in petroleum levy collection for the upcoming fiscal year 2025-26, reflecting a sharp 26.4% increase compared to revised estimates of the current fiscal year. This aggressive approach is outlined in the Finance Bill 2025-26 and underscores the government’s reliance on non-divisible revenue sources to meet fiscal targets.
The increase is largely driven by a proposed hike in the petroleum levy cap, raising the maximum limit from Rs70 per liter to Rs90 per liter on various petroleum products. This upward revision in levy rates is projected to yield Rs1,468.395 billion, which marks a significant Rs307.395 billion jump from the revised figure of Rs1,161 billion for FY2024-25. The amount is also Rs158 billion higher than the Rs1,311 billion target projected by the International Monetary Fund (IMF) in its recent staff-level report released in May 2025.
The petroleum levy is a crucial component of federal revenue as it is excluded from the Federal Divisible Pool (FDP), meaning the proceeds are not shared with provinces under the National Finance Commission (NFC) award. This makes it a valuable fiscal tool for successive governments aiming to fund federal expenditures without provincial sharing obligations.
In addition to mainstream petroleum products, the government has expanded the scope of the levy regime. A target of Rs105 billion has been set through a new levy on Off the Grid (Captive Power Plants), enacted under the “Off the Grid (Captive Power Plants) Levy Bill, 2025.” This levy will be applied incrementally: starting at 5% and rising to 20% by August 2026.
Moreover, Rs5 billion has been earmarked as petroleum levy on Liquefied Petroleum Gas (LPG) for FY2025-26, up from the revised estimate of Rs3.156 billion for the current fiscal. The original allocation for the ongoing year was Rs3.537 billion, reflecting continued focus on expanding levy-based revenue sources across the broader petroleum spectrum.
Other notable energy-sector revenue targets include Rs2.4 billion from the Gas Infrastructure Development Cess (GIDC), and Rs49.437 billion from the Natural Gas Development Surcharge (GDS), which benefits the provinces. Meanwhile, windfall levies on crude oil and gas are projected to generate Rs20 billion and Rs450 million, respectively.
Overall, the government’s strategy emphasizes optimizing petroleum-linked revenues through a broad-based levy structure, aiding its fiscal consolidation goals while navigating IMF requirements and internal economic pressures.