Fuel levy poses bigger inflation risks

Economists quoted by The Express Tribune say fuel prices push up inflation well beyond their direct weight in Pakistan's Consumer Price Index. Motor fuel carries a 2.91% weight in the urban CPI basket, according to Pakistan Bureau of Statistics data, while the broader transport group accounts for 6.14%. Prices of motor fuel were 24.43% higher year-on-year in August, and the transport group rose 21.79% over the same period.

Economist Adil Nakhoda said the effect is amplified through transport, logistics and energy costs, as businesses pass on higher expenses to buyers. He singled out diesel, which he considered more closely linked to economic activity than petrol, and suggested its levy be revisited. Nakhoda and former FPCCI secretary-general Shahid Anwar both view the levy as an efficient revenue tool, although they warned against overreliance on it.

The levy has helped narrow the fiscal deficit to below 2.6% of GDP and produced a primary surplus of 2.9% of GDP, according to Nakhoda. A record amount of Rs1.567 trillion was gathered from it in FY2025-26, while the FY2026-27 budget targets Rs1.68 trillion. The IMF put the effective tax rate on petroleum products at 166%, and estimated that better GST efficiency could raise around Rs2.1 trillion, or 1.8% of GDP.