By Mohsin Bashir
The recent and repeated increases in petroleum prices in Pakistan have raised a fundamental question: have people accepted inflation, or has their silence been mistaken for consent? It increasingly appears that policymakers have concluded that petrol prices exceeding Rs300 per litre have become the country’s “new normal.” Under this assumption, even if fuel prices rise by a few rupees every day, there will be no meaningful public protest, no significant political pressure, and no public reaction capable of influencing government policy. Yet history suggests that silent societies are not necessarily content societies. More often, silence is another name for helplessness under sustained economic hardship.
The government has recently introduced a new petroleum pricing mechanism under which the Oil and Gas Regulatory Authority (OGRA) determines the ex-depot price each day based on the average international prices recorded over the previous seven days. According to the government, this approach allows global market movements to be reflected more quickly in domestic prices, making the pricing system more transparent and market-oriented. At first glance, this argument appears persuasive. However, an important question remains: is this genuine deregulation, or has only the frequency of price announcements changed?
A fundamental economic reality is being overlooked in this debate. Around the world, nearly every commodity is priced according to daily changes in supply and demand. Crude oil is no exception. Gold, silver, copper, aluminium and other metals fluctuate every day in global markets. Agricultural commodities such as wheat, maize, rice, cotton, sugar and coffee also experience daily price movements. Even in local markets, wholesale prices of poultry, fish, meat, fruit and vegetables change regularly.
But does this mean that every manufacturer, every industry and every global brand changes the retail price of its products every single day? Certainly not. Businesses do not determine prices solely on the basis of raw material costs. They also consider existing inventories, import contracts, production costs, supply chain conditions, market competition, consumer purchasing power and long-term business strategy. As a result, daily fluctuations in global commodity markets are not automatically passed on to consumers on the same day.
If this principle is accepted across virtually every sector of the global economy, why should petroleum products be treated differently? Will daily fuel price revisions make business planning easier, or will they increase uncertainty? Can industries, transport operators, farmers and traders realistically estimate their costs when fuel prices are changing every day? These are questions that deserve serious economic debate.
An even larger issue concerns the meaning of “deregulation.” Genuine deregulation exists only when an independent, professionally managed regulator, free from political influence, oversees pricing within a competitive market framework. In Pakistan, however, petroleum prices continue to be determined under government policy, official pricing formulas and OGRA’s administrative supervision. If the key decisions remain with the government, it is difficult to describe the system as a truly deregulated market.
Higher fuel prices never remain confined to petrol stations. More expensive fuel increases freight costs, raises agricultural production expenses, pushes up industrial input costs, affects electricity generation and ultimately makes almost every consumer product more expensive. This is why central banks around the world regard energy prices as one of the most significant drivers of inflation. The State Bank of Pakistan has repeatedly highlighted energy prices as one of the principal contributors to inflation in its monetary policy statements.
International Monetary Fund (IMF) programmes have also consistently identified the petroleum levy as an important source of government revenue. However, the real issue is not whether the government needs revenue. The real question is how that revenue should be collected in a way that imposes the least possible burden on the economy.
This brings into focus the distinction between the petroleum levy and the General Sales Tax (GST). At present, the government relies more heavily on the petroleum levy than on GST for petroleum products. The difference between the two is fundamental. Under Pakistan’s Constitution, GST forms part of the Divisible Pool and is shared between the federal and provincial governments through the National Finance Commission (NFC) Award. The petroleum levy, on the other hand, is retained entirely by the federal government, with provinces receiving no constitutional share.
If the existing high petroleum levy were replaced with the standard 18 per cent General Sales Tax, current tax calculations suggest that the retail price of petrol and diesel could decline to approximately Rs275 to Rs280 per litre. Such a shift would not only provide direct relief to consumers but could also generate broader economic benefits.
More importantly, GST is input-adjustable. Industries, exporters, transport companies and other registered businesses can offset the GST paid on their inputs against their output tax liability. Consequently, GST does not become a permanent business cost. The petroleum levy, by contrast, is entirely non-adjustable, directly increasing the cost of doing business. Those higher costs are eventually passed on to consumers through higher prices for goods and services, further fuelling inflation.
Replacing the petroleum levy with GST would therefore do more than reduce fuel prices. It would improve the competitiveness of Pakistani industry, lower production costs, support exports, encourage investment and strengthen domestic manufacturing. Furthermore, GST revenues would be distributed constitutionally among the provinces, strengthening fiscal federalism and enabling provincial governments to allocate greater resources to education, healthcare and infrastructure.
By contrast, revenue generated through the petroleum levy remains entirely with the federal government and is generally used to finance routine government expenditures, reduce fiscal deficits and service public debt. Consequently, the debate is not simply about taxation levels. It is also about the structure of taxation, the distribution of public resources and broader economic priorities.
Pakistan’s geographical location adds another dimension to the discussion. The country lies close to the Strait of Hormuz, through which a substantial portion of the world’s oil supply passes. Yet despite this strategic proximity, fuel prices in Pakistan remain higher than those in several neighbouring countries. India, despite being considerably farther from major oil-producing regions, has managed to maintain comparatively lower inflation. The difference lies not in geography but in economic management, fiscal policy, taxation, energy strategy and governance.
Pakistan does not simply need higher revenue; it needs better revenue—revenue that does not unnecessarily increase the cost of doing business, weaken industrial competitiveness, undermine exports or further erode household purchasing power. Heavy dependence on the petroleum levy may provide short-term fiscal support to the federal government, but over the longer term it risks imposing a much greater economic cost through higher inflation, elevated production expenses, weaker exports and slower economic growth.
The objective of a prudent state is not merely to maximise tax collection. It is to establish a tax system that benefits citizens, businesses, the federation and the provinces alike. Ultimately, the success of economic reforms is measured not only by fiscal statistics but also by public confidence. That confidence can only be built when the state demonstrates that its policies are designed not simply to maximise revenue, but also to strengthen the economy, enhance industrial competitiveness and improve the lives of ordinary citizens.
