FBR Explains Petroleum Tax Exemption and Levy Impact

The Federal Board of Revenue (FBR) has clarified that the government's exemption of petroleum products from sales tax does not eliminate the overall tax burden on consumers, as these products continue to remain subject to the Petroleum Development Levy (PDL).

According to the FBR’s Tax Expenditure Report 2026, petroleum products were treated separately from other sales tax exemptions because the continued collection of the Petroleum Development Levy means consumers still bear a fiscal charge despite the absence of sales tax.

The report explains that the Petroleum Development Levy component was excluded from the calculation of sales tax expenditure to prevent the same fiscal burden from being counted as a tax concession.

After incorporating this adjustment, the FBR estimated the total cost of sales tax exemptions and concessions for FY2024-25 at approximately Rs1.27398 trillion.

The report identifies healthcare and medical supplies, fertiliser and agriculture, food, manufacturing, energy, stationery, Gwadar, and Export Processing Zones (EPZs) among the principal sectors benefiting from sales tax exemptions and concessional treatment.

Separately, the FBR estimated that income tax exemptions granted across 11 major sectors resulted in an annual revenue impact of approximately Rs580 billion.

Among the largest beneficiaries of these income tax concessions were the social security and pension sector, energy and mining, financial services, healthcare and pharmaceuticals, education, tribal areas, as well as donations and charitable organisations, according to the report.