Pakistan’s plan to modernize its domestic oil refineries with billions of dollars in investment is facing serious uncertainty as the International Monetary Fund (IMF) insists on new tax conditions that could sharply increase fuel prices, officials and sources say.
According to sources, the IMF has demanded the imposition of an 18 percent sales tax on petroleum products and has also opposed any tax concessions on imported machinery required for refinery upgrades. These conditions have raised concerns that the ambitious modernization plan could be delayed or derailed altogether.
Government officials warn that accepting an additional two percent sales tax on petroleum products — on top of the existing 18 percent — would make fuel prices unaffordable for consumers. Sources estimate that petrol prices could rise by Rs47.50 per liter, while diesel prices could increase by more than Rs50 per liter, significantly adding to inflation and the cost of living.
Sources further claim that the IMF has linked the sales tax requirement to ensuring a 72 percent return on investment for refinery upgrades. Officials argue that such conditions make cost recovery and pricing mechanisms extremely difficult, undermining the financial viability of the project.
Pakistan currently lacks the capacity to produce Euro V standard fuel, with local refineries only capable of refining Euro II and Euro III petrol and diesel. To meet international fuel quality and environmental standards, the country requires an estimated $6 billion investment to upgrade existing facilities.
The government had requested permission to import refinery machinery tax-free to support modernization efforts, but the IMF has rejected the proposal. Officials say this refusal could significantly slow progress or discourage potential investors.
Experts note that diesel used in Pakistan still contains high sulphur content, posing serious environmental and public health risks. Without advanced refining capabilities, the country continues to rely on substandard fuel, contributing to worsening air pollution.
Due to limited domestic refining capacity, Pakistan imports around 70 percent of its petrol and 30 percent of its diesel, amounting to approximately 20,000 metric tons of petrol and 18,000 metric tons of diesel daily. These imports remain highly vulnerable to exchange rate volatility and taxation policies, which further inflate domestic fuel prices.
Officials argue that without refinery upgrades, Pakistan will remain exposed to external shocks, rising energy costs, and long-term environmental damage.
