The federal government has decided to lift the cap on the Petroleum Development Levy (PDL), clearing the way to impose a levy of up to Rs. 100 per liter on petroleum products starting from the next fiscal year 2025-26, according to reports.

Currently, the PDL stands at Rs. 78 per liter, having been raised from Rs. 60 since July 2024. This increase has already generated over Rs. 1 trillion in tax revenue during the first ten months of the ongoing fiscal year, with the government targeting a total PDL collection of Rs. 1,105 billion for the year.

The move to further increase the levy is aimed at bridging the revenue gap for the Federal Board of Revenue (FBR) and supporting subsidies for the power sector as well as the emerging electric vehicle industry.

In addition to changes in the petroleum levy, the government has also agreed with the International Monetary Fund (IMF) to remove the 10 percent cap on the Debt Service Surcharge (DSS) applied to electricity bills. The DSS currently cannot exceed 10 percent of power companies’ revenue requirements, but lifting this cap is expected to help reduce Pakistan’s persistent circular debt in the energy sector.

According to the IMF’s latest country report on Pakistan, the government will introduce legislation by June 2025 to eliminate the DSS cap. The report highlights Islamabad’s commitment to achieving net-zero circular debt flow by fiscal year 2025 through a mix of timely tariff hikes, targeted subsidies, and cost-cutting reforms.

Pakistan has also pledged to continue with quarterly tariff adjustments and monthly fuel cost revisions to ensure that base tariffs align with actual revenue needs, thereby preventing further accumulation of circular debt.

The government’s comprehensive strategy will be detailed in the Fiscal Year 2026 Circular Debt Management Plan, which is expected to receive cabinet approval by July 2025.