The Federal Board of Revenue (FBR) has introduced a new Federal Excise Duty (FED) of Rs80 per litre on three petroleum-related products, effective from July 1, 2026. The move has been introduced under amendments made through the Finance Act 2026 and is primarily aimed at preventing the misuse and adulteration of petroleum products.
The new levy covers top naphtha, white spirit or mineral turpentine oil (MTT), and solvent oil. Unlike several petroleum products, these items were not previously subject to the Petroleum Development Levy (PDL), making them comparatively attractive for unauthorized blending and adulteration.
New Duty Targets Petroleum Adulteration
The government’s decision is largely focused on curbing the practice of mixing products that do not carry PDL with petroleum products that are subject to the levy. Authorities expect the additional cost created by the FED to reduce the incentive for such practices.
Under the revised provisions of the Federal Excise Act, 2005, the Rs80-per-litre duty will be collected through the sales tax mechanism. This arrangement is significant for registered businesses because, where applicable, the amount paid as FED can be adjusted against output sales tax.
As a result, the new levy may not necessarily represent a permanent additional tax cost for businesses that meet the relevant requirements.
Conditional Relief for Industrial Consumers
The government has also recognized that these petroleum products are legitimate inputs for a number of industries. To avoid placing an unnecessary burden on manufacturers, the new framework provides certain conditional exemptions and exclusions.
Relief may be available in cases where the final product manufactured using these inputs is exempt from sales tax. Certain arrangements involving suppliers and manufacturers connected to the FBR’s digital invoicing system may also qualify for relief, provided all prescribed conditions are fulfilled.
Businesses using these products in manufacturing will therefore need to carefully review the applicable requirements to determine whether they qualify for the available concessions.
Support for Refinery Modernization
Alongside the new petroleum-product duty, the government has introduced sales tax relief on selected machinery, equipment and other items required by refineries.
The relief is intended to support activities such as refinery upgrades, scheduled turnarounds, maintenance and major overhauls. These measures are particularly relevant as Pakistan’s refining sector faces increasing pressure to modernize its facilities and improve the quality of locally produced fuels.
Focus on Cleaner and More Efficient Fuel Production
Refinery modernization is also linked to broader environmental objectives. Upgraded facilities can help improve emission-control systems and reduce the carbon and sulphur intensity associated with fuel production.
The tax concessions for refinery-related equipment are therefore intended not only to facilitate investment but also to encourage the industry to move toward cleaner fuel standards and improved environmental performance.
What the New Policy Means
The introduction of the Rs80-per-litre FED represents a significant change for businesses dealing in top naphtha, white spirit and solvent oil. While the measure increases the tax obligations surrounding these products, the sales-tax treatment and conditional industrial relief are designed to protect legitimate commercial and manufacturing activity.
At the same time, the government is using taxation as a tool to discourage petroleum adulteration while providing incentives for the refining industry to invest in modernization.
Overall, the new measures reflect a two-sided approach: tighter controls on the misuse of petroleum products and targeted tax relief for legitimate industrial and refinery operations.