Petroleum Levy Hike to Deepen Industrial Crisis, Fuel Inflation: PIAF

Saigol says increasing petroleum levy despite easing global oil prices will raise business costs and weaken competitiveness

By Muhammad Shahzad

LAHORE: The Pakistan Industrial and Traders Associations Front (PIAF) has strongly criticised the government’s decision to increase the petroleum levy on petrol and high-speed diesel while keeping retail fuel prices unchanged, warning that the move will raise the cost of doing business, fuel inflation and further erode the competitiveness of Pakistan’s industrial and trade sectors.

In a joint statement, PIAF Chairman Faheemur Rehman Saigol, who also serves as President of the Lahore Chamber of Commerce and Industry (LCCI), along with PIAF Senior Vice Chairman Nasrullah Mughal and Vice Chairman Tahir Manzoor Chaudhry, said the decision had disappointed the business community as it came despite a decline in international crude oil prices that could have provided relief to industries, transporters, farmers and consumers.

Instead, they said, the government chose to increase the petroleum levy, effectively retaining the financial burden on productive sectors of the economy.

Saigol said petroleum products are a key cost component for manufacturing, transportation, agriculture, construction and commercial activities. Any increase in fuel-related taxation, he said, directly raises freight charges, distribution expenses and production costs, making locally manufactured goods more expensive in both domestic and international markets.

He noted that Pakistan’s industrial sector is already grappling with high electricity tariffs, elevated financing costs, expensive raw materials, liquidity constraints and weak domestic demand. Under such conditions, he said, additional taxation on petroleum products would further squeeze industrial margins and discourage fresh investment at a time when economic growth should be the government’s top priority.

Saigol said industries had expected some reduction in domestic fuel prices following the decline in global oil markets. Lower fuel costs, he added, could have helped businesses reduce operating expenses, improve productivity and enhance the competitiveness of export-oriented sectors. However, by increasing the petroleum levy, the government had effectively offset the potential benefits of lower international oil prices.

He warned that higher transportation costs inevitably increase the prices of food items, industrial inputs, construction materials and consumer goods, spreading inflationary pressures throughout the economy while reducing consumers’ purchasing power and increasing financial burdens on businesses and households alike.

PIAF Senior Vice Chairman Nasrullah Mughal said frequent reliance on petroleum levies to generate government revenue is not a sustainable fiscal strategy. While acknowledging the government’s financial challenges, he argued that imposing higher indirect taxes on essential fuels ultimately weakens productive sectors that generate employment, exports and long-term tax revenues.

“A stronger industrial base would generate more sustainable revenue than repeatedly increasing petroleum levies,” he said.

Vice Chairman Tahir Manzoor Chaudhry said exporters are already operating in an increasingly competitive global environment where production costs are critical. Rising fuel-related expenses, he said, make Pakistani products less competitive by increasing logistics and manufacturing costs.

He added that small and medium-sized enterprises (SMEs), which form the backbone of Pakistan’s industrial sector, would be among the hardest hit because of their limited ability to absorb rising operating costs.

The PIAF leaders also warned that agriculture, which depends heavily on diesel for irrigation, transportation and farm machinery, would face higher operating expenses. Increased production costs in the agricultural sector, they said, would eventually translate into higher food prices, adding further inflationary pressure at a time when consumers are already struggling with rising living costs.